![Page 1: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/1.jpg)
Chapter 14 Government Revenue & Spending
![Page 2: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/2.jpg)
SEC 1. HOW TAXES WORK
![Page 3: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/3.jpg)
Government Revenue◦Street lighting, highways, law
enforcement, & the court system◦Government also provides aid for
people in need
![Page 4: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/4.jpg)
Government Revenue
Where does the money come from to pay for such goods and services?
![Page 5: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/5.jpg)
Government Revenue
◦Borrowing & lotteriesRights to tax are set in the U.S.
Constitution and in state constitutions
![Page 6: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/6.jpg)
Principles of Taxation◦Benefits taxpayers receive from
taxes◦Their ability to pay
![Page 7: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/7.jpg)
![Page 8: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/8.jpg)
Question 1Can you explain why a worker
earns $264 but receives a paycheck for less than $264?
![Page 9: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/9.jpg)
Question 2What happens to the amount
earned not received by the employee? Meaning where did the $30.84 that the employee go to?
![Page 10: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/10.jpg)
Benefits-Received Principle◦Financing of road construction &
maintenance through gasoline
◦Difficult for governments to asses exactly how much different taxpayers benefit from services like national defense, national parks, local police, fire protection, and public education
![Page 11: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/11.jpg)
Ability-to-Pay Principle◦People with higher incomes will pay
more than people of lower incomes
◦The level of benefits is not a consideration
![Page 12: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/12.jpg)
Ability-to-Pay Principle
Questions to Consider◦Should everyone pay the same
percentage of income?
◦Should those with higher incomes pay a higher percentage of their income in taxes?
![Page 13: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/13.jpg)
Criteria for Taxation◦Equity, Simplicity, & Efficiency
![Page 14: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/14.jpg)
Equity◦Requires people in similar situations
pay a similar amount of taxesExample
◦Everyone pays the same price for taxSome believe
◦Equity requires that people with higher incomes pay more than people with lower incomes
![Page 15: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/15.jpg)
Simplicity
◦Should be NO confusion bout the time the tax is due and the amount to be paid
◦Sales tax meets the criterion of simplicity
![Page 16: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/16.jpg)
Efficiency
Taxpayers’ view◦Tax efficiency can be judged by the
amount of effort and expense it takes to pay the tax
◦Individual income tax best meets the criterion efficiency
![Page 17: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/17.jpg)
Tax Base & Structures
Tax base, each type of wealth is subject to taxes◦Individual income, corporate income,
sales, and property
![Page 18: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/18.jpg)
Individual Income Tax◦Wages, interests, dividends, and tips
All taxes are ultimately paid from Income, but using income as a tax base means that the amount of tax is directly linked to a person’s earnings
![Page 19: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/19.jpg)
Corporate Income Tax◦From savings & investment in the
form of interests & dividends
![Page 20: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/20.jpg)
Sales Tax◦Generally imposed on a wide range of
goods or services◦Percentage of the posted price of the
good or service◦Included in the final price the buyer
paysThe seller then passes the tax
revenue collected from customers on to the government that has imposed the tax
![Page 21: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/21.jpg)
Property Tax◦Generally real estate◦Pay on the values of their buildings and
the land◦Property tax is generally included in
rent charges◦Can be imposed on other assets like
automobiles
![Page 22: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/22.jpg)
If overall personal income rises, the individual income tax base grows
If there are fewer homes or businesses in a certain locality or if the value declines, the property tax base shrinks
![Page 23: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/23.jpg)
Tax StructuresThe way in which taxes are
imposed on the different tax bases gives rise to three different tax structures
These tax structures are distinguished from one another
![Page 24: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/24.jpg)
Proportional Tax◦Flat tax, rate of the tax is the same for
all taxpayersExample
◦All taxpayers in a given state might be charged a flat 15% tax on the income
◦No matter a person’s income is
![Page 25: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/25.jpg)
Progressive Tax◦Income increases so does your tax
rate
United States ◦Federal income tax = progressive tax◦Tax rate increases as income
increases
![Page 26: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/26.jpg)
Taxable income of $40,000Page 413
Income Bracket
Marginal Tax Rate
$0-10,000 10 %
$10,000-$30,000
15%
$30,000-$50,000
25%
![Page 27: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/27.jpg)
Income in each bracket
Tax Bracket
$ 10,000 10%
$ 20,000 15%
$10,000 25%
![Page 28: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/28.jpg)
Income in Bracket X Marginal
Tax Rate = Marginal Tax
$ 10,000 X 10 % = $1,000
$ 20,000 X 15% = $3,000
$10,000 X 25% = $2,500
Total Tax $6,500
![Page 29: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/29.jpg)
Regressive Tax◦Income paid in taxes decreases as
income increases◦Sales tax
![Page 30: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/30.jpg)
Incidence of a Tax
![Page 31: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/31.jpg)
Resource Allocation
![Page 32: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/32.jpg)
Productivity & Growth
![Page 33: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/33.jpg)
Economic Behavior
![Page 34: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/34.jpg)
FEDERAL TAXESSection 2
![Page 35: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/35.jpg)
Individual Income TaxThe federal government takes in
around $2.5 trillion in revenue each year◦Individual income tax , Social
insurance taxes, Corporate income taxes, Estate taxes, Gift taxes, Excise taxes, & Customs taxes
◦Largest source of taxes = individual income tax
Government uses income tax◦16 Amendment to the US Constitution
in 1913
![Page 36: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/36.jpg)
Withholding
![Page 37: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/37.jpg)
Taxable Income
![Page 38: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/38.jpg)
Tax Return
![Page 39: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/39.jpg)
Indexing
![Page 40: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/40.jpg)
Federal Insurance Contribution Act
![Page 41: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/41.jpg)
Social Secuity
![Page 42: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/42.jpg)
Medicare
![Page 43: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/43.jpg)
Unemployment Taxes
![Page 44: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/44.jpg)
Corporate Income Taxes
![Page 45: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/45.jpg)
Estate Tax
![Page 46: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/46.jpg)
Gift Tax
![Page 47: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/47.jpg)
Excise Tax
![Page 48: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/48.jpg)
Customs Duty
![Page 49: Chapter 14 Government Revenue & Spending. SEC 1. HOW TAXES WORK](https://reader035.vdocuments.site/reader035/viewer/2022062321/56649de35503460f94ad9ca2/html5/thumbnails/49.jpg)
User Fee