CH9 Section 3:

• Intergovernmental revenue• funds collected by one level of government

that are distributed to other levels of government.

• Federal government to states.

Property tax

• a tax on possessions• Tangible: real estate, buildings, furniture,

automobiles, farm animals• Intangible: stocks, bonds, bank accounts

• Tax assessor:• Government person authorized to put a value on

property for tax purposes.• Must know “reasonable” value of property.

Payroll withholding statement

• summary statement attached to a paycheck, detailing– Two-weeks, month’s pay (gross income)– Withholding and deductions– Payments and deductions so far in the year– What employee is actually receiving (net income)

Section 4:

• Accelerated depreciation• tax relief from the early 1980s allowing

businesses to – Depreciate capital more than normal• Allowing them to reduce their taxes substantially.

Investment tax credit

• a reduction in business taxes that are tied to investment in – New plants and equipment

• Business taxes went from 12.5% in 1980 to – 6.2% in 1983

• Most ordinary citizens still pay an average of 15% of their income.– “Trickle-down economics”

surcharge

• additional tax above and beyond the base rate– 1986 tax restructuring intended to prevent rich

from not paying taxes at all

Alternative minimum tax

• Personal income rate that applies whenever the amount of taxes paid falls below the designated level

• People at a prescribed income rate, have to pay a minimum tax of 20%, regardless of – Deductions– loopholes

Recent AMT ratesStatus Single Married Joint Married Separate Trust Corporation

Tax Rate: Low 26% 26% 26% 26% 20%

Tax Rate: High 28% 28% 28% 28% 20%

High Rate Starts $175,000 $175,000 $87,500 $87,500 n/a

Exemption 2009 $46,700 $70,950 $35,475 $22,500 $40,000

Exemption 2010 $33,750 $45,000 $22,500 $22,500 $40,000

Exemption phase out starts at $112,500 $150,000 $75,000 $75,000 $150,000

Zero 2009 exemption at $299,300 $433,800 * $216,000 $165,000 $310,000

Zero 2010 exemption at $247,500 $330,000 * $165,000 $165,000 $310,000

Capital gain rate 25% 25% 25% 25% 20%

Capital gains

• profits from the sale of an asset held for 12 months.– Long-term investments

• Republicans reduced this tax in 1997– 28% to 20%

Value-added tax

• aka: VAT• A tax placed on the value that manufacturers

add at each stage of production• Like a national sales tax– European Union– Japan

• US does not have one.

Flat tax

• proportional tax on individual income after a prescribed level has been reached.

• Advantages– Simple– Minimizes loopholes– Easy to prepare

• Disadvantages– Taxes used for incentive would disappear

• Charities, environment, investment/reinvestment, consumption– Difficulty in deciding the rate levels

Assessments: Checking for Understanding

• 1• Funds collected by one level of government

that are distributed to other levels of government for expenditures.

Assessment

• 3• Sales tax• Intergovernmental revenues• Individual income taxes• Employee retirement contributions• Assessments levied on state employees

Assessment• 4• State:– Collect from intergovernmental revenues– Sales taxes– Employee retirement contributions– Individual income taxes

• Local:– Collect from intergovernmental revenues– Property taxes– Public utilities and state liquor store sales– Sales taxes

Assessment

• 5• Federal income tax• State income tax• City income tax (not LA)• FICA taxes

Assessments: Checking for Understanding

• 1• To influence and reward behavior– Investment/Reinvestment– Charity– Environment– Consumption

Assessment

• 3 (just list – review in text)• Economic Recovery Tax Act of 1981• Tax reform act of 1986• Omnibus Budget Reconciliation Act of 1993• Taxpayer Relief Act of 1997• 2001 tax reform

Assessment

• 4• Advantages:– Hard to avoid– Widely spread tax incidence– Easy to collect– Encourages savings

• Disadvantages:– Invisible to consumers– Competes with state sales taxes

Assessment

• 5• Advantages– Simple– Minimizes loopholes– Easy to prepare

• Disadvantages– Taxes used for incentive would disappear

• Charities, environment, investment/reinvestment, consumption

– Difficulty in deciding the rate levels

Assessment

• 6• Tax code is more complex now• Record tax revenues of the 1990s• Political power changes

image, p. 239

• What are the two largest sources of state revenue?• Intergovernmental revenue• Sales taxes• + which one(s) do you directly pay into at your age?– Sales tax– Hospital fees– Utility and liquor stores– Other

image, p. 240

• Which states have the highest level of taxes? The lowest level?

• Highest: Hawai’i and New York• Lowest: New Hampshire and South Dakota

image, p. 241

• What percentage of this individual’s pay has been deducted from her paycheck?

• About 27%, +how did we get that number?(800 – 586.69) ÷ 800

image, p. 243

• Questions• 1 How does Marriott benefit from investing in coal

treatment machinery? • By using credits to reduce its tax liability• 2 Why do few corporations pay the 35% tax rate

mandated by the federal government? • Because they are able to take advantage of favorable

tax rules and regulations– Most can afford expensive tax lawyers and accountants

that ordinary cannot.

Image, p. 245

• What tax credits were part of the Taxpayer Relief Act of 1997?

• Tax credits for children• + Was the American Revolution about NOT

having to pay taxes?• No, it was about – Having the right to decide if a tax was necessary

and proper.– Taxation WITH representation

• How long will his tax reduction plan take to implement?

• 10 years• Monday, November 15, 2010, the battle in the

“Lame Duck: Congress begins…..– Conservatives want to make them permanent– Liberals want them to end, and the rich to pay

their taxes…..

Image, p. 246

Image, p. 247

• Questions• 1 What is measured in the graph? • Tax revenues as a percentage of GDP• 2 Describe the pattern for Canada from 1991

to 1996? • Canada’s rate increased slightly throughout

the period

Image, p. 248

• Is VAT regressive, proportional, or progressive? Why?

• VAT tends to be regressive because – persons with lower and fixed incomes tend to

spend a larger percentage of their incomes on tax.