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T for Taxes

T for Taxes. Chapter 9 sections 1 & 2 Teacher’s edition. GPS Standard. SSEMA3: The student will explain how the government uses fiscal policy to promote price stability, full employment and economic growth. a. Define fiscal policy. b.  Explain the government's taxing and spending decisions.

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T for Taxes

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  1. T for Taxes Chapter 9 sections 1 & 2 Teacher’s edition

  2. GPS Standard • SSEMA3: The student will explain how the government uses fiscal policy to promote price stability, full employment and economic growth. • a.Define fiscal policy.b.  Explain the government's taxing and spending decisions.

  3. EUs and EQs • EU: Incentives: The student will understand that parties respond predictably to positive and negative incentives. • EU: Interdependency: The student will understand that, because of the interdependency, a decision made by one party has intended and unintended consequences on other parties. • EQ: How can government policies affect consumer behavior, and how can consumer behavior affect government policies? • EQ: How do fiscal policy decisions affect the nation’s economy?

  4. We SEE that a good tax is Simple, Equitable, and Efficient. Simple Equitable Efficient

  5. Benefit Principle: those who benefit from gov’t services should be the ones who pay for them and in proportion to what they receive. Ability-to-Pay Principle: people should be taxed according to their ability to pay, regardless of the benefits they receive. PRINCIPLES OF TAXATION

  6. Types of Taxes • Proportional: imposes same percentage rate of taxation on everyone • Progressive: imposes a higher percentage rate of taxation on people with high incomes than on those with low incomes • Regressive: imposes a higher percentage rate of taxation on low incomes than on high incomes

  7. FEDERAL TAX SYSTEM • IRS (Internal Revenue Service) is part of the Treasury Department

  8. 3 largest sources of government revenue • Individual income tax • FICA • Corporate income tax

  9. INDIVIDUAL INCOME TAX • Paid over time through payroll withholding system • Self-employed workers must pay > 20% alternative minimum tax quarterly. • Before April 15th each year, an employee must file a tax return: an annual report to the IRS summarizing total income, deductions, & taxes withheld by employers • Progressive Tax that ranges from 15% -39.6%

  10. What is FICA? And why does it take part of my paycheck? • FICA stands for Federal Insurance Contributions Act • FICA tax includes Social Security (6.2% of wages) & Medicare (1.45% of wages) • Total FICA tax = 7.65%

  11. Their married name is FICA social security + medicare Always together on your paycheck!

  12. What type of Tax is FICA? • Social Security is a proportional tax up to $102,000 (the capping point) and then it is regressive. (the capping point increases annually) • Medicare is not capped; it’s proportional at all levels of income

  13. CORPORATE INCOME TAX • 3rd largest category of federal taxes • Corporation is recognized as a separate entity • Rates vary from 15% -35% (slightly progressive)

  14. OTHER FEDERAL TAXES • Excise Tax: tax on the manufacture or sale of certain items, such as gasoline and liquor • Estate Tax: tax the gov’t levies on the transfer of property when a person dies • Gift Tax: tax on gift of money/wealth paid by person making gift

  15. Major State Gov’t Revenue Sources • Intergovernmental Revenues - money from federal gov’t • Sales tax - general tax on consumer purchases • Employee Retirement Contributions • Individual Income Taxes (not all states)

  16. Local government revenue sources • Intergovernmental transfers • Property taxes • Sales tax (SPLOST)

  17. States with the Highest Sales Tax: Mississippi Rhode Island Washington Texas Illinois States Without a State Sales Tax Alaska Delaware Montana New Hampshire Oregon STATE SALES TAX

  18. Advantages of Sales Tax • Effective way to raise large sums of money • Difficult to avoid because it affects large numbers of consumers • Relatively easy to administer - merchant collects at point of sale

  19. QUESTION: SHOULD A FEDERAL SALES TAX REPLACE THE FEDERAL INCOME TAX? • What would be the advantages? • What would be the disadvantages? • Would you like to see this happen?

  20. Local Property Taxes • Second largest source of revenue for local governments • Real Property: includes real estate, buildings, & anything permanently attached • Tangible Personal Property: includes tangible items, not permanently attached. • Intangible Personal Property: property with invisible value, such as stock, bond, patent, check

  21. QUESTION: WHY ARE STATE & LOCAL GOVERNMENTS LOSING MONEY TO THE INTERNET??? • State & local governments rely heavily on sales tax for revenues • State & local governments already lose $3.3 billion each year to untaxed interstate sales • This figure will increase as more sales are made over the Internet • Should there be an Internet sales tax??? How would it work?

  22. Parting words. .. . . The elasticity of demand determines the incidence of a tax. • The incidence of a tax identifies whom the final burden of paying a tax falls upon. • Proposals for a flat tax would result in a federal income tax for which all would pay the same percentage of their income. This opposes the principle of ability to pay, it would make calculating taxes much simpler, & would probably cause structural unemployment among tax lawyers & tax accountants

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