taxes and you do now seven minutes grapple: why should we pay taxes and how much should we pay? ...
TRANSCRIPT
Taxes and YouTaxes and You
DO NOW Seven Minutes
Grapple: Why should we pay taxes and how much should we pay?
Essential --- What benefits do we receive from paying taxes?
DO NOW Seven Minutes
Grapple: Why should we pay taxes and how much should we pay?
Essential --- What benefits do we receive from paying taxes?
TAXES: The main source of government revenue
TAXES: The main source of government revenue
…nothing is certain, but death and taxes.
B. Franklin
…nothing is certain, but death and taxes.
B. Franklin
Taxes Fund Public Goods and Services
Taxes Fund Public Goods and Services
National Defense
State and Local Police
Financial Aid
Health Care for Elderly
Public Education
Social Services
The Economics of Taxation
The Economics of Taxation
In addition to creating revenue for the government, taxes also impact the economy in the following ways:
Resource allocation - if taxes are too high, supply will decrease and /or prices will increase causing a shift in the allocation of land, labor and capital.
Behavior adjustment - sin taxes, such as those placed on cigarettes attempt to change a person’s behavior
Productivity and Growth - if taxes are too high, there is less incentive for people or businesses to continue to grow. Why earn more if most of it is taken away in higher taxes?
Correct negative externalities Stabilize the economy through fiscal policy
In addition to creating revenue for the government, taxes also impact the economy in the following ways:
Resource allocation - if taxes are too high, supply will decrease and /or prices will increase causing a shift in the allocation of land, labor and capital.
Behavior adjustment - sin taxes, such as those placed on cigarettes attempt to change a person’s behavior
Productivity and Growth - if taxes are too high, there is less incentive for people or businesses to continue to grow. Why earn more if most of it is taken away in higher taxes?
Correct negative externalities Stabilize the economy through fiscal policy
To be effective Taxes must meet the following
criteria:
To be effective Taxes must meet the following
criteria:
EQUITYIs this tax fair?
SIMPLICITYIs this tax easy to understand?
EFFICIENCYIs this tax easy to administer?
Does this tax generate enough money?
CRITERIA FOR TAXES
EQUITYIs this tax fair?
SIMPLICITYIs this tax easy to understand?
EFFICIENCYIs this tax easy to administer?
Does this tax generate enough money?
CRITERIA FOR TAXES
TWO PRINCIPLES of TAXATION
TWO PRINCIPLES of TAXATION
“Who pays What” is based on two principles:
Benefit Principle - The more you benefit from something, the more you should pay. Taxes on gasoline
Ability to Pay - The more you make the more you should pay.
“Who pays What” is based on two principles:
Benefit Principle - The more you benefit from something, the more you should pay. Taxes on gasoline
Ability to Pay - The more you make the more you should pay.
Types of TaxesTypes of Taxes
Taxes are classified according to the ay in which the tax burden changes as income changes.
Proportional Tax Progressive Tax Regressive Tax
Taxes are classified according to the ay in which the tax burden changes as income changes.
Proportional Tax Progressive Tax Regressive Tax
Proportional TaxesProportional Taxes
Regardless of Income, the same tax rate is imposed upon everyone. Another term for a proportional tax is a flat tax.
If there is a 20% flat tax, how much do you pay in taxes if you earn $10,000? What if you earn $100,000?
Note as a person’s income increases, the percentage of total income paid in taxes remains the same.
Property Tax is a proportional tax.
Regardless of Income, the same tax rate is imposed upon everyone. Another term for a proportional tax is a flat tax.
If there is a 20% flat tax, how much do you pay in taxes if you earn $10,000? What if you earn $100,000?
Note as a person’s income increases, the percentage of total income paid in taxes remains the same.
Property Tax is a proportional tax.
Progressive TaxProgressive Tax People with higher incomes pay a higher percentage
in taxes. Federal and State income tax are progressive taxes.
Simple “the more you make the more they take”
People with higher incomes pay a higher percentage in taxes. Federal and State income tax are progressive taxes.
Simple “the more you make the more they take”
INCOME Amount Paid in Taxes
Amount Paid as a percentage of Income
$10,000 $1,000 10%
$50,000 $ 10,000 20%
$100,000 $ 30,000 30%
Regressive TaxesRegressive Taxes The lower the income the higher
percentage paid in taxes. Sales tax is an example of a regressive tax.
Assume two families paid $1000 in sales tax by the end of the year. Which family spent a higher percent of their income on taxes?
The lower the income the higher percentage paid in taxes.
Sales tax is an example of a regressive tax. Assume two families paid $1000 in sales tax by the end of the year. Which family spent a higher percent of their income on taxes?
Income Amount paid in taxes
Amount paid in taxes as a percentage of their income.
$10,000 $1000.00 10%
$50,000 $1000.00 5%
FEDERAL TAXESFEDERAL TAXES-Amendment 16 gives Congress the power to lay and collect taxes. Federal Income Taxes are due April 15. -The Internal Revenue Service (IRS) enforces/ collects from the tax code.
Income TaxIncome Tax
Individual income taxes are paid over time through a payroll withholding system (just look at your paycheck). By April 15, of every year you must file a tax return. Any difference in the amount paid compared to the amount owed is settled at this time.
Two forms to know are your W4 and your W2. What are they?
Individual income taxes are paid over time through a payroll withholding system (just look at your paycheck). By April 15, of every year you must file a tax return. Any difference in the amount paid compared to the amount owed is settled at this time.
Two forms to know are your W4 and your W2. What are they?
W4W4
Your withholding allowance Fill out a W4 every time you start a new job Increases or Decreases the amount of
withholdings based on the number of dependents
0=more withheld 2 =less withheld Your employer and you are putting away
small portions of your paycheck, in order for you to pay your income tax at the end of the year.
Your withholding allowance Fill out a W4 every time you start a new job Increases or Decreases the amount of
withholdings based on the number of dependents
0=more withheld 2 =less withheld Your employer and you are putting away
small portions of your paycheck, in order for you to pay your income tax at the end of the year.
What does W4 look like?What does W4 look like?
http://www.irs.gov/pub/irs-pdf/fw4.pdf
http://www.irs.gov/pub/irs-pdf/fw4.pdf
Sample W-2 FormSample W-2 Form
Contains your tax information for one job in one year You’ll receive one for each job you worked at during the year Must be mailed by January 31 or every year.
Contains your tax information for one job in one year You’ll receive one for each job you worked at during the year Must be mailed by January 31 or every year.
Real World Business
Money Town, NY 60640
Erma Money
2301 South Jackson
Money Town, NY 14111
000-00-000
16,680.24
16,680.24 1034.16
1,728.00
241.9216,680.24
IL 12-2222222 16,680.24 440.40
12-2222222
D 2000.00
More Federal TaxesMore Federal Taxes Corporate Income Tax - As a separate
legal entity, corporations are taxed. Excise Tax - tax on the manufacture or
sale of selected items Estate Tax - tax (18-50%) on the
transfer of property upon a death. As of 2006, estates worth less than 2 million dollars are exempt.
Gift Tax - Tax on money donations, paid by the person donating.
Customs Duties: Tax on imported goods. Exported goods may not be taxed.
Corporate Income Tax - As a separate legal entity, corporations are taxed.
Excise Tax - tax on the manufacture or sale of selected items
Estate Tax - tax (18-50%) on the transfer of property upon a death. As of 2006, estates worth less than 2 million dollars are exempt.
Gift Tax - Tax on money donations, paid by the person donating.
Customs Duties: Tax on imported goods. Exported goods may not be taxed.
State Taxes and Local Taxes
State Taxes and Local Taxes
Intergovernmental Revenues - transfer of money from the federal government
Sales Tax Employee
Retirement Contributions
Individual Income Tax
Intergovernmental Revenues - transfer of money from the federal government
Sales Tax Employee
Retirement Contributions
Individual Income Tax
Intergovernmental Revenues -from state level
Property Tax Public Utility or
State owned liquor stores
Sales Tax - this varies from city to city!
Intergovernmental Revenues -from state level
Property Tax Public Utility or
State owned liquor stores
Sales Tax - this varies from city to city!
Where do your New York tax dollars go?
Where do your New York tax dollars go?
http://www.nationalpriorities.org/auxiliary/taxday2008/243.pdf
http://www.nationalpriorities.org/auxiliary/taxday2008/243.pdf