Raising RevenueAKA Fiscal Policies

• The federal government can’t develop and sustain its programs without revenue– The income the

government collects from us.

How does the Federal government make revenue?

• Taxes– Charges laid on individuals and businesses

by a government.

• THIS IS THE FEDERAL GOVERNMENTS PRIMARY SOURCE OF REVENUE!!

Federal Taxes

• How does the federal government collect taxes from an individual? – Income taxes!!

Individual Income Tax

• Makes up the federal government’s largest source of revenue. – Around 70% of all federal revenue comes from

personal income tax.

– What does this include? • Wages and salaries• Business profits• Tips• Dividends

– Payments received as a return on an investment

Individual Income Tax, cont.

• Personal income tax is based on a progressive tax

– Larger percentages of income are taken from people with higher incomes.

Table 1 [Income Tax Paid to Federal Government]

Individual Tax Payer

• 10% on income between $0 and $8,025

• 15% on the income between $8,025 and $32,550

• 25% on the income between $32,550 and $78,850

• 28% on the income between $78,850 and $164,550

• 33% on the income between $164,550 and $357,700

• 35% on the income over $357,700

What is taxable income?

• Taxable income = sum of all sources of a person’s income minus deductions and exemptions

• Math Equation: – All Personal Income – (Deductions + Exemptions) = Taxable Income

What are deductions and exemptions?

• Deductions: – Money that the government

allows you to subtract from your taxable income.

• School loan interest• Mortgage interest • Donations

• Exemptions: – Money that can not be

taxed at all. • Given to people who have

children.

So how does this all add up? • Personal Income

– $40,000

• Deductions– $3,000 mortgage interest– $650 school loan interest– $750 donations

• Total = $4,400 deductions

• Exemptions– $3,500 for one child

• Total taxable income = $32,100

– WHY IS THIS IMPORTANT???

You get a refund!!• Original Personal Income

– $40,000• Taxed at 25%

– Should have paid $10,000 in taxes!

• True taxable income– $32,100

• Taxed at 15%

– Only have to pay $4,815 in taxes.

• Refund = $5,185

Table 1 [Income Tax Paid to Federal Government]

Individual Tax Payer

• 10% on income between $0 and $8,025

• 15% on the income between $8,025 and $32,550

• 25% on the income between $32,550 and $78,850

• 28% on the income between $78,850 and $164,550

• 33% on the income between $164,550 and $357,700

• 35% on the income over $357,700

Trip to Bahamas

Or Cavs floor seats Season Tickets

Or rent your own castle for a day!

When do you have to pay your taxes?

• April 15th of every year! – If you do not pay by

then, you have to:• File for an extension• Pay fines• Go to jail!

What if I own a business? • If you own a business,

– You must pay a corporate income tax.

• Based on a business’s net income.

– What is net income? • Revenue (Money made) –

Expenses (Money spent).

• Makes up the 3rd largest source of revenue for the federal government.

• Example:– Apple Computers paid

$1,580,000,000 in 2008

How much did Apple make in 2008?

• $6,210,000,000 in revenue!