Taxes Example

Federal Income Tax-Ex. 25% (10%--37%) State Income Tax—10% State Sales Tax—8% Social Security Tax—7% Property Tax—1.5% Excise Tax—(cigarette, liquor, gas, etc.) Personal Property Tax—Cars, boats, etc.

Fiscal Policy 15.1

Fiscal Policy—Spending, Taxing, and Borrowing policies.

Tax Rate—the % of a person’s income that goes toward taxes.

Types of Taxes— Proportional Taxes Progressive Taxes Regressive Taxes

Types of Taxes 15.1

1. Proportional Taxes—This tax takes the same % from individuals at all income levels.

2. Progressive Taxes—This tax takes a larger % of income from a high-income person than from a low-income person.

3. Regressive Taxes—This tax takes a larger % of income from members of low-income groups than from members of high income groups.

Types of Taxes 15.1

Proportional—Ex. Bob earns $10,000/yr. And Amy earns $100,000/year. State of Az. Has a 5% state tax. Bob pays $500/yr. Amy pay $5,000/year.

Progressive-- $24,000/year X 15% tax bracket($3600)$263,750/year X 39.6% tax bracket ($104,445).

Regressive—Dan earns $18,00/year; Angela earns $24,000/year. Each buys a $20 CD and pays 8% sales tax or $21.60 for CD. % wise, Dan pays higher % of his salary.

Collecting Taxes 15.1

Largest Sources of Tax Revenue: Individual income taxes Corporate income taxes Social Security taxes Property taxes Sales taxes

Sources of Tax Revenue 15.1

1. Individual Income Taxes Progressive income tax Collected by the federal, state, local gov’ts. Workers pay through payroll taxes Employers deduct taxes from your checks Sometimes known as “pay as you go” tax

Sources of Tax Revenue 15.1

2. Corporate Income Taxes: Corporate profits are taxed by the gov’t Many corporations pay reduced taxes due to

tax breaks which help promote plant modernization.

Ex. New Walmart in Mesa is getting $84M in tax incentives to build there.

Sources of Tax Revenue 15.1

3. Social Security Taxes: (FICA) Withheld from workers pay checks Taxes are used to finance social welfare

programs. Social Security payments to retirees Provides health care to older Americans Regardless of income, all workers pay the same

7.65 % of their income for social security taxes.

Sources of Tax Revenue 15.1

4. Property Taxes: Taxes apply to houses, land, factories. Can also include personal property—ex.

Automobiles, boats, jewelry. These taxes are used locally for such things

as education, police, fire protection.

Sources of Tax Revenue 15.1

5. Sales Taxes: Regressive tax assigned to certain goods and

services by state and local governments. Some states, medicine, food, and other

necessities are NOT taxed. Other Taxes and Revenues:

Excise Tax—tax on manufacture, sale, or consumption, of a particular good/service.

Ex. Tobacco, liquor, gasoline, firearms, gambling

Other Taxes and Revenues 15.1

Estate Tax—Tax placed on assets of a person who has died. Generally, does not apply unless assets greater than $600,000

Gift Tax—Tax placed on the transfer of certain gifts, money. Gift giver does not have to pay if not greater than $11,000/yr.

Customs Duty—Tax on imported goods.