Agenda Mon 4/23 & Tues 4/24AND

Wed 4/25 & Thurs 4/26• Stock Updates• QOD #30: Stock Updates• Macro Exam Review• QOD # 31: Certainty • Taxes• Federal Budgets• HW: Page 430 #1-6 & Signed Progress Report

– Taxes/Budget Quiz Fri 4/27 and Mon 4/30

QOD #30: Stock UpdateQOD #30: Stock Update• How is your portfolio doing at this point in the game?How is your portfolio doing at this point in the game?• What would you do differently if you had the What would you do differently if you had the

chance? (If nothing, why not?)chance? (If nothing, why not?)• What have you learned about the stock market from What have you learned about the stock market from

this project?this project?• What have you learned about the economy from this What have you learned about the economy from this

project?project?• Do you think you will invest in the stock market in Do you think you will invest in the stock market in

the future? Why/not?the future? Why/not?

QOD #31: Certainty““Certainty? In this world nothing is certain Certainty? In this world nothing is certain

but death and taxes.” -- but death and taxes.” -- Benjamin Franklin • What did Ben Franklin mean by this?• What are some different types of taxes?• What is the money collected used for?• Who should pay the most taxes? Why?• Who receives the greatest benefit from federal spending?

Why? Give examples.• Does this group pay the largest amount of taxes?

• Why or why not?• Do you think they pay a larger or smaller percentage of their income to

taxes compared to those that pay the least?

3 Major Federal Taxes• Personal Income Tax: a tax that a person pays on

his or her income.• Corporate Income Tax: the tax corporations pay on

their profits.

Federal Income Tax Brackets For 2010 & 2011 – Based On Taxable Income Ranges

2012 Federal Income Tax Progressive Rates

Single

(8700 – 0) = x .10 =

(35,350 – 8,700) = x .15 =

(85,650 – 35,350) = x .25 =

(178,650 – 85,650) = x .28 =

(388,350 – 178,650) = x .33 =

(above – 388,350) = x .38 =

Federal Income Tax on $30,000Single

(8700 – 0) = x .10 =

(35,350 – 8,700) = x .15 =

(85,650 – 35,350) = x .25 =

= x .28 =

= x .33 =

x .38 =

Total Tax

Federal Income Tax - $125,000Single

(8700 – 0) = x .10 =

(35,350 – 8,700) = x .15 =

(85,650 – 35,350) = x .25 =

(178,650 – 85,650) = x .28 =

= x .33 =

= x .38 =

Total Tax

Federal Income Tax -$375,450Single

(8700 – 0) = x .10 =

(35,350 – 8,700) = x .15 =

(85,650 – 35,350) = x .25 =

(178,650 – 85,650) = x .28 =

(388,350 – 178,650) = x .33 =

(above – 388,350) = x .38 =

Federal Income Tax – $1,000,000Single

(8700 – 0) = x .10 =

(35,350 – 8,700) = x .15 =

(85,650 – 35,350) = x .25 =

(178,650 – 85,650) = x .28 =

(388,350 – 178,650) = x .33 =

(above – 388,350) = x .38 =

Total Tax

Social Security• Social Security Tax: a tax placed on income

generated from employment.• Half the tax is paid by the employer and half is paid by

the employee• 6.2% on earnings up to $110,100

• Social Security covers several social welfare and insurance programs

• Federal Old-Age, Survivors, and Disability Insurance, Unemployment benefits, Temporary Assistance for Needy Families, Medicare, Medicaid, State Children's Health Insurance Program (SCHIP), Supplemental Security Income (SSI)

Other Major Taxes• Excise Tax: Taxes that are placed on certain

purchased goods such as tobacco and gasoline.• Sales Tax: These taxes are applied to the purchase

of a broad range of goods such as cars, clothes, TV’s etc. (State)

• Property Tax: These taxes are based on the value of property (such as a home). (State and Local)

More Taxes

• Estate tax – federal tax on inheritances above $5,120,000 – death tax

• Gift tax – federal tax on gifts over $12,000 (2008) and $13,000 (2009)

• consumption tax – national sales tax similar to European VAT (value added tax)– under consideration by conservatives to replace

revenue lost in income tax cuts to wealthy corporations

Where Does the Money Go?• National Defense• Income Security• Health• Medicare• Social Security• Education• Training• Employment• Social Services• Net interest on National Debt• Other

Two Principles of Taxation• benefits received principle – a person should

pay taxes equal to the benefit they receive from government– e.g. business owners and shareholders make

more use of courts, gov agencies, airports and roads [infrastructure], police and fire services

• ability-to-pay principle – people should pay taxes according to their ability to do without the money– rich people can afford to pay more than poor

Theories about taxation

• What is your fair share?• Benefits-received principle- person should

pay in taxes an amount equal to the benefits s/he receives from the govt.– If you drive a tremendous amount you should pay

high gas taxes to repair road damage. Road repair should not come out of income tax or property tax.

– Who should pay for the schools? Who benefits?

Theories of taxation• Ability to pay principle- Everyone benefits from

national defense. Who should pay? How do we decide who pays what? Some say it should be based on ability to pay.

• A rich person should pay more taxes than a poor person.

• If you make $1,000,000 you pay $330,000 a year in taxes whereas a person who earns $30,000 a year will pay $10000 year in taxes.

• Is that fair?

Types of taxes• Progressive income tax- the more you make the

more you should pay. Progressive taxes are usually capped.

• Federal income tax rates are progressive.• Regressive income tax- people pay a lower rate as

their income rises. It is a tax that takes a larger percentage from low-income people than from high-income people.

• Which taxes are regressive?

Answer

• Regressive taxes – cigarette taxes, gasoline taxes, sales taxes

• (A regressive tax is generally a tax that is applied uniformly– or a flat tax. This means that it hits lower-income individuals harder. )

The Budget Process• President – prepares his budget priorities

with his advisors.–reflects his political beliefs and vision for the

country• Congress – committees scrutinize the budget

–the Congressional Budget Office (CBO) provides non-partisan financial analysis

The Budget Process• Congress – committees scrutinize the budget

– works out differences with the White House– works out differences between Republican and

Democratic members of Congress– works out differences between the Senate and

House– special interest lobby Congress members– passes budget by start of fiscal year – Oct 1

Federal SpendingPreview Questions: If your parents kept spending money on

you to keep you happy, without regard to their income, what would eventually happen to them?

• What if it were an elected official, spending the government’s money on you?

• Would you be more or less likely to vote for a candidate who ran for office promising to provide more to you?

• Why would a candidate want to give you more? • Where does the money come from? • Are there any limits to as to what government can spend

money on?

Discussion Questions1. What is the focus in this debate over federal spending?2. What is it called when the government plans to spend

more money than it takes in? Should it spend more than it takes in?

3. A budget deficit adds to the national debt. How much do you think the national debt is now?

4. Why would a candidate run for office promising to give you less? Shouldn’t he be worried about losing his next election? Why / Why not?

Back to the Future: Budget Crisis 2004• You are a California state legislator in the year 2004.• Governor Davis (and his analysts) have projected there will be a $15

billion deficit this year & $34.8 billion over next 18 months.• You need to select from the list, those cuts which you will propose

at the next budget meeting totaling a minimum of $34.8 billion.– Read over all of the options, including the “pain” description to see who you

may be impacting.– Remember, each choice does carry a political cost…you need to get reelected

to keep your job! – You can choose to play the game with either reelection as your priority or a

balanced budget. You choose!

• Create a list/table with the tax/cut title, amount and political cost.– Under each item, include a justification for that choice.– Tally your dollar totals and political cost totals.

references• Arnold, R (2001). Economics in our times, 2nd edition. Chicago, IL: National Textbook

Company . • http://www.whitehouse.gov/omb/budget/fy2009/index.html• http://www.nationalpriorities.org/images/stories/chartspage/revenuesbysource.gif • http://www.nationalpriorities.org/Budget-Briefs.html• http://www.taxes.state.mn.us/taxes/all_tax_types.shtml • http://www.irs.gov/formspubs/article/0,,id=150856,00.html • http://www.ssa.gov/pubs/10003.html