Taxes and Government Spending

Chapter 14

What are taxes?» A required payment to a local,

state, or federal government» Becomes government revenue

Constitution» Social Contract» Constitution

» Article 1» Limits to taxation

» For Common defense» For general welfare» No taxes on churches» No taxes on exports

Tax Bases & Tax Structure

» Tax base: the income, property, goods, or services subject to taxes» Income tax (corporate & personal)» Sales tax» Property tax

Tax Structure» Proportional:

» percentage of income paid in taxes remains the same for all incomes

» Progressive» Percentage of income paid in taxes increases

as income increases» Regressive

» Percentage of income paid in taxes decreases as income increases (sales tax)

Characteristics of a Good Tax

» Simplicity» Efficiency» Certainty» Equity

» Fair: benefits received» Fair: ability to pay

Tax Revenue and Tax Rates

» Laffer Curve

Taxes» Changes price of product

» Supply» Demand» Incidence of a Tax: final burden of a

tax

Federal Tax» Individual Income Tax» Corporate Income Tax» Social Security, Medicare and

Unemployment taxes» Other Taxes

» Excise» Estate» Gift» Import

Income Tax: Personal & Corporate

» Pay as you earn» Withholding» Filing tax return

» Taxable income» Personal exemptions» Deductions» Tax bracket

Federal Insurance Contribution Act

» Social Security» 1935 Old Age Survivors and Disability

» Medicare» National health insurance program for

people over 65

Unemployment Tax» Paid by employers» Insurance policy for workers who might

be laid off» California borrowed $40 million a day

during the Great Recession» raise the taxable base from $7,000 (CA has

the lowest allowable base), » raise the maximum tax rate » reduce the maximum weekly benefit.

Other Taxes» Excise tax: tax on sale or manufacture of

goods - gasoline, cigarettes, alcohol» Estate tax: tax on property left by a dead

person, prior to inheritance» Gift Tax: money or property given to a

living person; to keep people from avoiding estate tax; give up to $10,000 tax free

Other taxes» Import Tax or tariffs

» Goods brought into USA from another country

» Limits competition

» Tax incentive: sin taxes-- encourage people no to smoke, drink alcohol

Federal Spending» Mandatory

required by existing law» Discretionary

» Government planners can make a choice

Mandatory» Entitlement Programs

» Social security: future» Medicaid» Supplemental Security Income

» Food stamps» Veterans Benefits» Unemployment Insurance

Discretionary» Defense

» Military» Civilians working

for the military

» Education» Training» Scientific research» Student loans» Technology» Parks» Law enforcement» Environmental cleanup» Housing» etc

Federal Aid » State» Local

» Emergency relief» Programs

» Education» highways

State and Local Taxes & Spending

» State Budgets» Operating budget» Capital budget

» Balanced Budgets

State Spending» Education» Public safety» Highways / transportation» Public welfare» Arts & Recreation» Administration

State Revenue» No tax » Federal property» Nonprofit organizations» Religious groups» Charities

» Tax Exempt

State Taxes» Sales tax» State income tax» Corporate income tax» Property tax

» Real property - land» Tax assessor

» Personal property - jewelry, stocks

Local Government Spending and Revenue

» City» County» 87,000 local government units

» Water district» School districts

Local Government Jobs» Public schools» Law enforcement» Fire protection» Parks» Public health

» Public transportation

» Elections» Record keeping» Social services