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Government’s Role

Government’s Role. Government’s Role. Provide Public Services paid by taxes. Redistribution of Income National Defense Economic Regulation Consumer Protection Monetary Policy – decisions carried out by a country’s central bank (Federal Reserve).

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Government’s Role

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  1. Government’s Role

  2. Government’s Role • Provide Public Services paid by taxes. • Redistribution of Income • National Defense • Economic Regulation • Consumer Protection • Monetary Policy – decisions carried out by a country’s central bank (Federal Reserve). • Measuring the Economy – GDP, CPI, Income, Unemployment, Consumer Confidence

  3. Where does the Government get its Money?

  4. Principles of Taxation • Benefit Principle – state parks, toll roads • Ability to Pay Principle – the more you make the more you pay. Ex: Federal Income Tax.

  5. Tax Rate Principles • Proportional – take the same share of all people’s income. Item purchased for $5.00 taxed at 6.5% = $ 5.33 Item purchased for $1,500 taxed at 6.5%= $1,599.75 • Progressive – takes a larger share of income as the amount of income grows. In the US 15 % is the lowest and 35% is the highest. • Regressive – take a smaller share of income as the amount of income grows. Example: sales tax. Jane earns $20,000 a year and pays 6% on a new car that costs $20,000. This is 6% of her income. John earns $50,000 a year and pays 6% on a new car that costs $20,000. This is 2.4% of his income.

  6. Payment Principles • Direct Method – payments are made directly to the government. Example: Income, property, vehicle license, outdoor licenses. • Indirect Method – payments are included in the cost of a good or service. Example: landlords pass on their property taxes to their tenants as part of their rent. • Pay-as-you-earn Taxes – payment are paid as you earn income. Example: withholding taxes for federal and state income. The government gets paid when you do. http://www.moneychimp.com/features/tax_brackets.htm

  7. What does the Government Spend Money On?

  8. Types of Taxes • Income Tax – taxes people pay on income. The taxes are collected by the IRS. What is the settlement date for this tax each year? Is this a direct, indirect and/or a pay as you earn tax? Is this a proportional, progressive or regressive tax? • Sales tax - taxes added to the price of goods and services at the time of purchase. The tax rate is set by the government. Is this a direct, indirect and/or a pay as you earn tax? Is this a proportional, progressive or regressive tax? • Property Tax – taxes paid on the value of real estate property. It pays for schools, cost of running local government and special projects. Is this a direct, indirect and/or a pay as you earn tax? Is this a proportional, progressive or regressive tax? • Excise Tax – taxes paid on certain products such as alcohol, gas, cigarettes, etc. Is this a direct, indirect and/or a pay as you earn tax? Is this a proportional, progressive or regressive tax?

  9. Type of Taxes cont’d • Social Security Tax - Taxes paid on money earned and withheld by the employer for retirement. Taxes are taken out from paycheck under FDIC (Federal Insurance Contribution Act). Is this a direct, indirect and/or a pay as you earn tax? Is this a proportional, progressive or regressive tax? • Estate Tax (death tax) – taxes on the property which will be received by those legally entitled to the estate. The federal exemption rose to $3.5 million per individual, or as much as $7 million per married couple. At the current level, only 5,500 estates a year are federally taxable. However, Minnesota also has an estate tax which has a state exemption of one million. • Gift Tax – Paid by the giver of gifts worth more than $10,000. Any gifts under $10,000 are not taxed. • Business Tax – Business must pay a license or permit fee in order to do business. • License Tax - Taxes on various things which require a license.

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