proportional tax

percentage of income paid in tax is the same regardless of income level

progressive taxhigher percentage rate of taxation on those with higher incomes

marginal tax rate amount of tax paid on an additional dollar of income

regressive tax tax that imposes a larger burden on those with lower incomes

individual income tax

tax levied on the wages, salaries, and other income of individuals

sales tax general taxes levied on a product at the time of sale

What People Say About Taxes"In this world nothing can be said to be certain, except death and taxes" - Benjamin Franklin "Taxes, after all, are dues that we pay for the privileges of membership in an organized society." - Franklin D. Roosevelt "The hardest thing in the world to understand is the Income Tax." - Albert Einstein

» The federal, state, and local governments of the U.S. need money to operate. In 2003 all three levels of government collected about $3 trillion, or about $10,300 for every man, woman, and child in the U.S.

Federal

StateLocal - County - City

A. _________________Tax is a tax that has a ________________________ on persons with high incomes than those with low incomes. Example: A person who makes $50,000 each year might pay a lower percentage in taxes than a person who makes $120,000 a year.

Progressive tax rate usually uses a ______________________ (incremental increases) – the tax rate that applies to the next dollar of taxable income. Example: If a person makes $30,000 a year, the tax rate might be 10%. If the person makes $30,001, he or she might pay 10% on the first $30,000 and 20% on the extra dollar. $30,000 x 10% = If make $50,525 $50,000 x 10% = $ 1 x 20% = $ 525 x 20% = Total tax paid = Total tax paid =

Progressive higher % rate

marginal tax rate

$3,000

$ .20$3,000.20

$5,000

$ 105$5,105.00

B. __________________Tax affects people on _________________ than people on __________________. A person with a lower income pays a higher percentage of his or her total income in ______________than does a person who makes more money.

Example: If a person has $10 of income and must pay $1 of tax on a package of cigarettes, this represents 10% of the person's income. However, if the person has $20 of income, this $1 tax only represents 5% of that person's income.

low incomes moreRegressivehigher incomes

sales tax

C. _______________Tax uses the _______percentage rate of taxation on everyone, no matter how much money they make. In other words, people with _______ incomes and _______ incomes ______________ percentage rate of their incomes in taxes. Example:

A person who makes $45,000 per year pays 20% in taxes: $45,000 x .20 = $

A person who makes $22,000 per year pays 20% in taxes:

$22,000 x .20 = $

Proportional same

low

high pay the same

9,000

4,400

1. The US income tax charges higher rates for those with higher incomes. This is an example of

A. a regressive taxB. a progressive taxC. a proportional tax

2. Roger owns a house worth $200,000. Charles owns a house worth $150,000. They both live in the same county and receive tax bills from the same tax office. Roger learns that he will have to pay $2000 in taxes for the year, while Charles learns that he will have to pay $1500 in taxes. It appears that property taxes on homes in Charles and Roger's county are a

A. progressive taxB. regressive taxC. proportional tax

3. Mike and Craig both go to the store to buy the latest iPod. They pay the same amount for the product. However, Mike earns less money than Craig so he ends up paying a higher % of his income than Craig does on sales tax. Such a tax is called

A. progressive taxB. proportional taxC. regressive tax

4. A flat tax is one that takes a fixed % of every taxpayers income. What type of tax would BEST describe such a tax?

A. proportionalB. progressiveC. regressive

5. Paying $1,000 tax on $10,000 of taxable income, $4,000 on $20,000 of taxable income, and $20,000 on $60,000 of taxable income in an example of a tax system that is

a) proportionalb) regressivec) progressived) average

6. The individual income tax is a(n) a) proportional taxb) progressive taxc) regressive taxd) excise tax

excise taxtax on the manufacture or sale of selected items

tax loophole exception or oversight in tax law

sin tax

tax designed to raise revenue & reduce consumption of particular products

gift tax tax on donations of money or wealth that is paid by the donor

FICA tax Social Security & Medicare tax

   

IRS branch of the Treasury Department in charge of collecting taxes

   

estate tax tax on the transfer of property when a person dies

property tax tax on tangible and intangible possessions

FICAState withholding

D. Payroll Deductions

-Payroll withholding system a person’s income tax is paid over time (automatically taken out)

-paid to the Internal Revenue Service (______)

-__________ file federal and state income tax return

- _____________income tax is a _____________tax (tax rate goes up when income goes up)

-____________ send quarterly estimates (4x per year)

IRS

April 15

Individual progressive

Self-employed

E. Three Major Federal Taxes1) ______________________TaxA tax paid by individuals and businesses to fund such services as national defense, human services, and the monitoring and regulation of trade.

2) Federal Insurance Contributions Act (______)Pays _______________and __________________ 3) _____________Income TaxTax corporations pay on their _________. The corporation is taxed because it is considered to have its own legal identity.

Federal Income

FICAMedicare Social Security

Corporateprofits

________Tax -- collected on property that changes hands when someone dies.

________Tax -- a tax on donations of money or wealth and is paid by the person who makes the gift.

F. Estate and Gift Tax

Estate

Gift

Assignment: Types of Taxes – Progressive, Proportional, and Regressive

consumer spending

goods & services bought by households in the satisfaction of their needs and wants

Consumptionusing a product or service until it has no remaining value

business spending

productive resources purchased by firms

government spending

part of the economy that is made up of federal, state, & local spending

II. Effects of Spending Decisions A. Household and Business Spending1. households = _________spending (consumption)a. more spending = ________________________b. more spending = ________________________c. business profits = ________________________d. business spending = _____________________ ORa. less consumption = ______________________b. less spending = _________________c. reduced prices = ______________d. less profits = _________________

consumerExpanding economyBusiness profits

More business spendingMore jobs and production

Less business spendingReduced pricesLess profits

unemployment

B. More Spending Decisions1. ______________- amount taken in by households2. less taxes = ________________income left over to spend i.e. ________________ income3. more spending = businesses can raise ________= more ______4. profits = _______________employment 5. more employment = ________________________incomes6. raised incomes = ___________________consumption

Incomemore or less??more

disposableprices profits

more or less??more

Increased or decreasedIncreasedmore or less??more

When consumption increases, employment usually

A. remains the sameB. decreasesC. increasesD. enters stagflation

Higher taxes tend to

A. increase consumptionB. increase unemploymentC. cause inflationD. lessen government spending

public sector

part of the economy concerned with providing basic gov't services

private sector

part of the economy made up of individuals & privately owned businesses

transfer payments

payment for which the government receives neither goods or services

national debtamount of money owed by the federal government

national deficit

how much money over budget the government is in a given year

fiscal policy

government decisions about taxing & spending designed to promote growth

fiscal conservatives

people who favor lower taxes & less government spending

fiscal liberals people who favor higher taxes & more gov't spending

Watch Video: Fiscal Policy (green thumb drive)

C. Government Spending

1. revenue = __________________________

2. most revenue is collected through taxes

-________& (most) _______income taxes

-______________tax, i.e. taxes on annual investments

-_____________ income tax

-taxes on your _______

-__________ tax

Money government takes in

federal state

Capital gains

business

car

property

3. Taxing ________& _____+ spending _______= __________

4. Fiscal policy = collecting taxes & spending

-decrease taxes: can lead to _____________ spending since consumers have more money in their pockets.   -increase taxes: Can lead to ________________ spending since consumers have less money in their pockets.   -decrease spending: Can lead to ______________ employment levels

since firms will need fewer workers due to decreased production levels.

  -increasing spending: Can lead to _____________ employment levels

since firms will need more workers to meet higher production levels.

5. determined by ______________ and ___________ branchesex - power to tax; president can veto/sign in

citizens firms revenue Fiscal policy

less or more??more

less or more??less

Lower or higher??lower

Lower or higher??higher

legislative executive

Fiscal Policy: Taxes and Spending

6. More gov't spending = -if not, annual _______________& ____________________ -____________spending -____________economy7. Less gov't spending = -__________ revenue-__________ consumer consumption-economic ________-business _________8. Fiscally ______________: To believe that a free market will best serve the needs of all people involved. "The government should do ______ so that the economy does better, making people do better."ex - Ronald Reagan / Newt Gingrich9. Fiscally _____________: To believe that government intervention is the best way to bring about economic equality and development. "The government should do ______so the people do better, making the economy do better."ex- Ted Kennedy / Barack Obama

higher taxesdeficits debt increases

lessslower

Lower taxeslessmore

growthgrowth

Conservative

less

Liberal

more

The way the government conducts spending and taxation is called what?

A. monetary policyB. economic policyC. free enterprise policyD. fiscal policy

Assume the government's most recent fiscal policy slowly caused the economy to speed up & enter an expansion. Mostly likely the government

A. increased taxesB. decreased taxesC. decreased the discount rateD. increased interest rates

Paul is part of a household and an architecture firm. If the governmentraises income taxes, Paul will be MORE LIKELY to

A. consume more goods in the market placeB. invest in more capitalC. purchase more stock D. consume less goods in the market

Which of the following are responsible for making fiscal policy decisions?

A. the president and CongressB. the Federal ReserveC. the Secretary of TreasuryD. the Commerce Department

The federal government is concerned the economy is growing too fast and inflation is rising at 6%. What action might the gov't take to slow this situation down?

A. increase taxesB. lower interest ratesC. increase gov't spendingD. open market sales

1. _______ - $$$ owed by thefederal gov't-influences taxes and spending

2. ______- amount of $$$ over budget the gov't is that year-deficits in a year add to the overall debt

3. _______________- spends less $$$ for that year

4. _______debt (gov't) vs. ______debt (private citizens)

III. National Debt & National Deficit

US Debt Clock: www.usdebtclock.org

Debt

Deficit

National Surplus

Public

Private

Revenues Expenses _________ (yearly)

2007 $100,000 150,000 - 50,000

2008 125,000 175,000 - 50,000

2009 110,000 200,000 - 90,000

TOTAL ______ $190,000

National Debt vs. National Deficit

A budget surplus means that

A. the government has spent more money than it took in.B. the Fed has spent more money than the government.C. the government has spent more money than the Fed.D. the government has taken in more money than it spends.

Adding everything the U.S. government owes calculates the

A. balance of paymentsB. national deficitC. unemployment rateD. national debt

Which of the following statements BEST differentiates between the terms debt and deficit?

A. Debt and deficit are synonymous B. Debt means to have more money flowing out than coming in and deficit is the accumulation of the debtC. Deficit means to have more money flowing out than coming in, and debt is the accumulated amount that is owed.D. Debt and deficit are completely unrelated terms

The government of Peru will spend $35 million more this year than it receives in revenue. Which of the following statements can be made with certainty?

A. Peru's debt is growingB. Peru will experience a trade deficitC. Peru is experiencing a budget deficitD. Peru will experience a trade surplus

Money has 3 functions

1._________________- assessed value then exchanged for goods

2. ________________- gives a value or price

3. ________________- can be used at a later date

Medium of Exchange

Standard of Value

Store of Value

When you buy a hamburger for lunch, you are using money as a

a) standard of deferred paymentb) standard of valuec) medium of exchanged) store of value

A $20,000 price tag on a new car is an example of money as

a) standard of deferred paymentb) standard of valuec) medium of exchanged) store of value

Open up a checking/savings account in your name because you recently received a job is using money as an example of

a) standard of deferred paymentb) standard of valuec) medium of exchanged) store of value