Taxes and Government Spending

Chapter 14, Section 1

Bell-Ringer

• Are taxes necessary? Why? As little as people may enjoy paying them, do you see the purpose? Why?

What is a Tax?

• A tax is a required payment to a local, state or national government

• This is the number one way a government collects money.

• Taxes give the government money to operate.

Why Pay Taxes?

• Revenue is income received by the government from taxes and other nontax sources.

• Without this revenue from taxes, the government couldn’t provide the goods and services we expect.

What Does the Government Provide?

• Government provides national defense, highways, education and law enforcement

Where Does the Government Get the Power to Tax?

• The founders of America gave government the power to tax.

Where Does the Government Get the Power to Tax?

• “To lay and collect taxes, duties, imposts and excises, to pay the debts, and provide for the common defense and general welfare of the United States; but all duties, imposts, and excises shall be uniform throughout the United States.”

US Constitution, Article 1, Section 8, Clause 1

Where Does the Government Get the Power to Tax?

• This was the basis for federal tax laws

Bell-Ringer

• Should all people pay the same tax rate or should it be based on income?

• Why was it important for the Federal Government to be able to tax?

• Articles of Confederation

• The Constitution specifically limits certain kinds of taxes

• A common defense and general welfare means that the money cant go to an individual interest.

• Federal taxes must be the same in every state.

• Can’t tax church services because it would violate freedom of religion in 1st Amendment

• Can’t tax exports, only imports. Can limit exports, but not tax them.

• A tax base is the income, property, good or service that is subject to a tax.

• It can be an individual income tax, which is a tax on a person’s earnings.

• A sales tax, which is a tax on the dollar value of a good or service being sold.

• A property tax, which is the tax on the value of a property.

• A corporate income tax, which is the tax on the value of a company’s profits

Tax Structures

• Proportional tax- tax for which the percentage of income paid in taxes remains the same for all levels. Whether income goes up or down, percentage of income paid in taxes stays the same.

• Flat tax

Bell Ringer

• Things to study for quiz:• Types of taxes• Types of economies• Incentive• Profit• Specialization• Plus more!

Tax Structures

• Progressive Tax- percentage of income paid in taxes increases as the income increases. People with small incomes might not pay a tax at all.

• Federal Income Tax

Tax Structures

• Regressive Tax- percentage of income paid in taxes decreases as income increases.

• Sales tax

What makes a tax good?

• 4 characteristics:• Simplicity• Efficiency• Certainty• Equity

What makes a tax good?

• Simplicity- Tax laws should be simple and easy to understand

• People should be able to prepare their own taxes

What makes a tax good?

• Efficiency- Government administrators should be able to collect taxes without spending too much time or money

• Taxpayers should be able to do so without giving up too much time or spending too much in fees.

What makes a tax good?

• Certainty- It should be clear when a tax is due, how much is owed and how the tax should be paid.

What makes a tax good?

• Equity- The tax system should be fair so that no one bears too much of the burden.

What’s Fair?

• Benefits-Received Principle- pay taxes based on benefits one expects to receive.

• Ability to Pay Principle- people should pay according to their ability to pay (earn more=pay more)

• Taxes affect more than just those paying them.

• When a tax is implemented on a good, the cost of supplying the good increases.

• The final burden of a tax is the INCIDENCE OF A TAX. Who will bear the actual burden of the tax?