Taxes & Government Spending

Chapter 14

What are Taxes? Taxes are required

payments to local, state or national governments

Revenue – income received by the gov’t from taxes

Article I, Section 8 grants the government the right to taxhttp://www.youtube.com/watch?v=POjRqJDvAjk&feature

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Limits on the Power to Tax

Taxes cannot be for individual interests.

Taxes must be the same in all states.

Exports cannot be taxed. 16th amendment legalized income

taxes.

Tax Base & Tax Structure Tax base – income, property, good, or that

is subject to a tax Individual income tax –

earnings

Sales tax – dollar value of a good or service being sold

Property Tax – value of property

Corporate Income Tax – value of a company’s profits

Types of Taxes Proportional tax-

percentage of income paid in taxes remains the same for all income levels.

Progressive tax – taxes increase as income increases

Regressive tax – taxes decrease as income increases

Characteristics Simplicity– simple and

easily understood Efficiency – able to

collect without spending too much time or money

Certainty – tax is due, no matter what

Equity – tax system should be fair

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Federal Taxes During 2011, the

federal gov’t took in about $2.16 trillion in taxes.

http://www.pagetutor.com/trillion/index.html

• Yet it spends nearly $3.45 trillion Tax withholding – taking payments out

of your check before you receive it. Tax return – form used to file income

taxes. Taxable income – person’s gross

income minus exemptions (salaries, wages, tips)

Are Write Offs Right On? Personal exemptions – set

amounts that are insulated from taxation• Spouses & dependants lower one’s income

Deductions – items

you can subtract from taxable income• interest on a mortgage, charitable donations, business expenses

Where do Taxes Go? FICA – Federal Insurance

Contributions Act • funds Social Security and Medicare• Brought in $806 billion, federally, last year in

revenue Social Security – retirement, surviving

family members, disabled Medicare – health care for people over

65 Unemployment taxes – insurance

policies for workers• laid off can file, must be actively seeking work

http://www.wheredidmytaxdollarsgo.com/

Other Taxes Excise taxes – alcohol, gasoline, cable tv,

phone etc. Estate taxes – tax on the property of

someone who has died (no tax for less than 1.5 million)

Gift taxes – tax on a gift given- only over $10,000 per year

Import taxes – imported goods Tax incentive – used to encourage or

discourage behavior.

Debt vs. Deficit A surplus occurs when the

government takes in money more than it spends

A deficit occurs when the government spends more money than it raises in revenue

All the money the government has borrowed over the years is referred to as the national debt

http://www.youtube.com/watch?v=lcb0hMPG5S0

Federal Spending Mandatory spending – money

that is required to be spent by law• Entitlements: Medicare, Medicaid

Discretionary spending – optional spending which can be altered through appropriations acts• bills must pass each year to continue spending in these categories: agriculture, commerce, defense, energy, homeland security, interior, financial services, labor health and education, transportation…

Entitlement Programs Entitlements are social welfare

programs that people are entitled to if they meet certain requirements.

Entitlements account for nearly 50% of the budget• Social Security – OASD• Medicare – health care for elderly

• Medicaid – health care for low-income families

State and Local Taxes Most taxes go to

funding an Operating budget – which pays for day to day expenses: • salaries, supplies, keeping the lights on, etc.

Balanced budget – revenues must equal spending• Only VT doesn’t require a balanced budget

http://www.pbs.org/wgbh/pages/frontline/tentrillion/view/?utm_campaign=viewpage&utm_medium=grid&utm_source=grid

Where is the Money Going?

Education – public schools and colleges

Public Safety – police, fire, prisons, etc

Highways/Transportation – roads, bridges, facilities, airports, etc.

Public Welfare – health departments, etc.

Recreations – parks, nature reserves

Administration – courts, legislature

State Revenue Other monies go to capital

budgets, or large investments or building projects

For the most part states receive revenue from sales taxes• Although property,

income, transfer, corporate and inheritance taxes are also included