the tax system
DESCRIPTION
The Tax System. Chapter 12. What Are Taxes and When Do You Have to Pay Them?. Taxes are payments to local, state or national governments. They are the government’s revenue or income. Taxes are paid when you buy goods and services. Taxes are paid when you earn income. - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/1.jpg)
The Tax System
Chapter 12
![Page 2: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/2.jpg)
What Are Taxes and When Do You Have to Pay Them?
• Taxes are payments to local, state or national governments. They are the government’s revenue or income.
• Taxes are paid when you buy goods and services.
• Taxes are paid when you earn income.• Taxes are paid when you own property.
![Page 3: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/3.jpg)
Who pays taxes?
• Individuals
• Businesses
• Foreign businesses
![Page 4: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/4.jpg)
Why taxes?
• Pay for government services• Pay for government goods• Pay for government transfer payments• Provide for economic stability
![Page 5: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/5.jpg)
What are the consequences of not paying taxes?
• Fines & interest payments• Loss of property• Jail term• Government unable to provide for our needs
![Page 6: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/6.jpg)
What kinds of taxes are there?• Personal Income tax• FICA – (Federal Income Contribution Act)
– Social Security– Medicare
• Sales tax• Property tax• Excise tax – tax on the supplier (usually included in the price)
• Tariffs – taxes on imported goods
• Corporate income tax
![Page 7: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/7.jpg)
“In this world nothing is certain but death and taxes.” . . . Benjamin Franklin
020
4060
80100
1789
Taxes paid in Ben Franklin’s time accounted for 5 percent of the average American’s income.
![Page 8: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/8.jpg)
“In this world nothing is certain but death and taxes.” . . . Benjamin Franklin
020
4060
80100
1789 Today
Today, taxes account for up to a third of the average American’s income.
![Page 9: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/9.jpg)
Government Revenue as a Percentage of GDP
![Page 10: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/10.jpg)
![Page 11: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/11.jpg)
Federal Spending• Spending for 2010 was
• $3.518 trillion.• Tax revenue for 2010 was
• $2.105 trillion.• 2010 deficit was $1.413 trillion.
![Page 12: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/12.jpg)
Federal Tax Revenue Sources 2010
Category % of total revenue
Individual income tax 42% FICA taxes (Medicare & Social Security)
40%
Corporate income tax 9% Excise 3% Others (tariffs, estate, etc.) 6%
![Page 13: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/13.jpg)
![Page 14: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/14.jpg)
• Federal spending falls under two categories – Mandatory & Discretionary
– Mandatory spending is spending on existing programs as required by law (61%)
• Most mandatory spending is on entitlements -social programs people are entitled to if they meet certain eligibility requirements. (55%)
– Social Security, Medicare (46%)– Medicaid (25%)– Income Security (food stamps, TANF, unemployment (21%)– Other retirement and disability programs (8%)
• Interest payment on the debt makes up the remainder (6%)
![Page 15: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/15.jpg)
– National defense and veteran’s programs (51%)– Foreign aide (3%)– Other spending (46% = .18 of each federal dollar
spent)• Education• Research• Student loans• National parks and monuments• Environmental cleanup• Federal courts and prisons
Discretionary spending is spending about which government planners can make choices (39%)
![Page 16: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/16.jpg)
![Page 17: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/17.jpg)
States’ Sources of Tax Revenue Texas /Other States Texas 2009
State average 2008
Categories % of total % of total Sales & excise tax
73% 35%
Personal income
0%
26%
Others (Texas has over 60 separate taxes, licenses & fees)
27% 35%
Corporate income
0% 4%
SOURCE: http://www.taxpolicycenter.org/briefing-book/state-local/revenues/overtime.cfm SOURCE: http://www.window.state.tx.us/taxbud/revenue.html
![Page 18: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/18.jpg)
State Revenue Sources
31% of all state revenue comes from the Federal government
![Page 19: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/19.jpg)
Local Tax Sources of Revenue 2008
Categories % of Total Property tax 47% Sales & excise tax 13% Personal & corporate income tax
3%
Licenses & other fees 37%
SOURCE: http://www.taxpolicycenter.org/briefing-book/state-local/revenues/local_revenue.cfm
![Page 20: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/20.jpg)
Local Sources of Revenue
Local governments receive 38% of their revenue from the state or federal government
![Page 21: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/21.jpg)
State Spending Categories
• Health 29%• Welfare 18 %• Education 17%• Pensions 11%• Transportation
7%• All others 17%
![Page 22: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/22.jpg)
Local Spending Categories• Education 38%
• Police & Fire 11%
• Transportation 8%
• Health 8%
• All others 35%
![Page 23: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/23.jpg)
Individual Income TaxesWhen evaluating equity and efficiency of taxes economists distinguish between marginal and average tax rates.
The marginal tax rate is the tax rate applied to each additional dollar of income.
![Page 24: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/24.jpg)
![Page 25: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/25.jpg)
Average Tax Rates are your total taxes divided by your total income
If your income is between $8, 351 and $33,950 your marginal rate is 15%, but your average tax rate would be less than 13.7%
![Page 26: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/26.jpg)
Paying Income Tax• Add up your deposit column on your current check
register. Add this amount to your previous income totals. This is your TOTAL INCOME
• Complete the 1040EZ tax return by following the directions on the form itself.
• Write a check for the amount owed – payable to the IRS.
• Attach check to 1040EZ along with income totals.• Before turning in calculate your average tax rate (taxes
paid/total income)______________________• How does that compare to the marginal tax rate for
your income on this page?
![Page 27: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/27.jpg)
If government spending exceeds government revenue (taxes) within one year it is called deficit spending If government revenue exceeds government spending within one year it is called a budget surplus
Government Debt and Deficits
![Page 28: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/28.jpg)
The Total Deficit or Surplus 1969 to 20162010 Projected deficit is $1.17 trillion.
![Page 29: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/29.jpg)
The US Federal Budget, in surplus only a few years ago, has dropped dramatically back into deficit. Recent budget deficits have broken all previous records.
![Page 30: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/30.jpg)
The Federal Debt is the total of all budget deficits and budget surpluses in our history.
http://www.usdebtclock.org/
![Page 31: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/31.jpg)
Most state and local governments require a balanced budget-revenues must equal expenditures for their operating budgets.
Money In equals Money Out
Governments may borrow to pay for building projects (capital budget).
![Page 32: The Tax System](https://reader038.vdocuments.site/reader038/viewer/2022110104/568168b8550346895ddf9bf3/html5/thumbnails/32.jpg)
State and Local governments divide spending between two different budgets.
Operating budget: pays for day to day expenses -salaries, supplies, maintenance. These expenses are paid for with taxes.
Capital budget: pays for major capital, or investment, spending - roads, buildings, bridges. These expenses are paid for by borrowing (bond sales).
State & Local Spending