Transcript PRINCIPLES OF TAXATION

T for Taxes
Chapter 9 sections 1 & 2
Teacher’s edition
GPS Standard
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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.
EUs and EQs
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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?
We SEE that a good tax is Simple,
Equitable, and Efficient.
Simple
Equitable
Efficient
PRINCIPLES OF TAXATION
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Benefit Principle:
those who benefit
from gov’t services
should be the ones
who pay for them
and in proportion to
what they receive.
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Ability-to-Pay
Principle: people
should be taxed
according to their
ability to pay,
regardless of the
benefits they
receive.
Types of Taxes
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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
FEDERAL TAX SYSTEM
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IRS (Internal
Revenue
Service) is
part of the
Treasury
Department
3 largest sources of
government revenue
 Individual
income tax
 FICA
 Corporate
income tax
INDIVIDUAL INCOME TAX
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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%
What is FICA? And why does it
take part of my paycheck?
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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%
7.65
92.35
Paycheck
FICA
Their married name is FICA
social security
+
medicare
Always together on your paycheck!
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
CORPORATE INCOME TAX
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3rd largest
category of
federal taxes
Corporation is
recognized as a
separate entity
Rates vary from
15% -35%
(slightly
progressive)
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
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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
47.1
22.1
13.9
Fed money
Retirement
Other
16.9
Sales Tax
Income Tax
Local government revenue
sources
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Intergovernmental transfers
Property taxes
Sales tax (SPLOST)
STATE SALES TAX
States with the
Highest Sales Tax:
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Mississippi
Rhode Island
Washington
Texas
Illinois
States Without a
State Sales Tax
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Alaska
Delaware
Montana
New Hampshire
Oregon
Advantages of Sales Tax
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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
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
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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?
Parting words. .. . .
The elasticity of
demand
determines the
incidence of a
tax.
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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