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T for Taxes
Chapter 9 sections 1 & 2Teacher’s edition
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GPS Standard
SSEMA3: The student will explain how the government uses fiscal policy to promote price stability, full employment and economic growth.
a. Define fiscal policy.b. Explain the government's taxing and spending decisions.
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EUs and EQs
EU: Incentives: The student will understand that parties respond predictably to positive and negative incentives.
EU: Interdependency: The student will understand that, because of the interdependency, a decision made by one party has intended and unintended consequences on other parties.
EQ: How can government policies affect consumer behavior, and how can consumer behavior affect government policies?
EQ: How do fiscal policy decisions affect the nation’s economy?
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We SEE that a good tax is Simple, Equitable, and Efficient.
SimpleSimple
EquitableEquitable
EfficientEfficient
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PRINCIPLES OF TAXATION
Benefit Principle: those who benefit from gov’t services should be the ones who pay for them and in proportion to what they receive.
Ability-to-Pay Principle: people should be taxed according to their ability to pay, regardless of the benefits they receive.
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Types of Taxes Proportional: imposes same
percentage rate of taxation on everyone
Progressive: imposes a higher percentage rate of taxation on people with high incomes than on those with low incomes
Regressive: imposes a higher percentage rate of taxation on low incomes than on high incomes
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FEDERAL TAX SYSTEM
IRS (Internal Revenue Service) is part of the Treasury Department
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3 largest sources of 3 largest sources of government revenuegovernment revenue
Individual income tax FICA Corporate income tax
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INDIVIDUAL INCOME TAX Paid over time through payroll
withholding system Self-employed workers must pay > 20%
alternative minimum tax quarterly. Before April 15th each year, an
employee must file a tax return: an annual report to the IRS summarizing total income, deductions, & taxes withheld by employers
Progressive Tax that ranges from 15% -39.6%
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What is FICA? And why does it take part of my paycheck?
FICA stands for Federal Insurance Contributions Act
FICA tax includes Social Security (6.2% of wages) & Medicare (1.45% of wages)
Total FICA tax = 7.65%
92.35
7.65
Paycheck FICA
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Their married name is FICA
social social security security
++
medicaremedicare
Always together on your paycheck!Always together on your paycheck!
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What type of Tax is FICA?
Social Security is a proportional tax up to $102,000 (the capping point) and then it is regressive. (the capping
point increases annually)
Medicare is not capped; it’s proportional at all levels of income
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CORPORATE INCOME TAX 3rd largest
category of federal taxes
Corporation is recognized as a separate entity
Rates vary from 15% -35% (slightly progressive)
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OTHER FEDERAL TAXES Excise Tax: tax on the
manufacture or sale of certain items, such as gasoline and liquor
Estate Tax: tax the gov’t levies on the transfer of property when a person dies
Gift Tax: tax on gift of money/wealth paid by person making gift
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Major State Gov’t Revenue Sources Intergovernmental
Revenues - money from federal gov’t
Sales tax - general tax on consumer purchases
Employee Retirement Contributions
Individual Income Taxes (not all states)
24.3
22.1
16.913.9
47.1
Fed money Sales TaxRetirement Income TaxOther
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Local government revenue sources
Intergovernmental transfers Property taxes Sales tax (SPLOST)
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STATE SALES TAX
States with the Highest Sales Tax:
Mississippi Rhode Island Washington Texas Illinois
States Without a State Sales Tax
Alaska Delaware Montana New Hampshire Oregon
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Advantages of Sales Tax Effective way to raise
large sums of money Difficult to avoid
because it affects large numbers of consumers
Relatively easy to administer - merchant collects at point of sale
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QUESTION: SHOULD A FEDERAL SALES TAX REPLACE THE FEDERAL INCOME TAX?
What would be the advantages?
What would be the disadvantages?
Would you like to see this happen?
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Local Property Taxes Second largest source of revenue for
local governments Real Property: includes real estate,
buildings, & anything permanently attached
Tangible Personal Property: includes tangible items, not permanently attached.
Intangible Personal Property: property with invisible value, such as stock, bond, patent, check
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QUESTION: WHY ARE STATE & LOCAL GOVERNMENTS LOSING MONEY TO THE INTERNET???
State & local governments rely heavily on sales tax for revenues
State & local governments already lose $3.3 billion each year to untaxed interstate sales
This figure will increase as more sales are made over the Internet
Should there be an Internet sales tax??? How would it work?
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Parting words. .. . .
The incidence of a tax identifies whom the final burden of paying a tax falls upon.
Proposals for a flat tax would result in a federal income tax for which all would pay the same percentage of their income. This opposes the principle of ability to pay, it would make calculating taxes much simpler, & would probably cause structural unemployment among tax lawyers & tax accountants
The elasticity of demand determines the incidence of a tax.