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Deficits , Surpluses , and the National Debt

Deficits , Surpluses , and the National Debt. Tax his car, Tax his gas, Find other ways To tax his ass Tax all he has Then let him know That you won't be done Till he has no dough. When he screams and hollers, Then tax him some more, Tax him till He's good and sore.

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Deficits , Surpluses , and the National Debt

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  1. Deficits,Surpluses,and theNational Debt

  2. Tax his car, • Tax his gas, • Find other ways • To tax his ass • Tax all he has • Then let him know • That you won't be done • Till he has no dough. • When he screams and hollers, • Then tax him some more, • Tax him till • He's good and sore. • Then tax his coffin , • Tax his grave, • Tax the sod in • Which he's laid. • Put these words • upon his tomb, • " Taxes drove me to my doom..." • When he's gone, • Do not relax, • Its time to apply • The inheritance tax. • Utility Taxes • Vehicle License • Registration tax • Vehicle Sales Tax • Watercraft • Registration Tax • Well Permit Tax • Accounts Receivable Tax • Building Permit Tax • CDL license Tax • Cigarette Tax • Corporate Income Tax • Dog License Tax • Excise Taxes • Federal Income Tax • Federal Unemployment Tax (FUTA) • Fishing License Tax • Food License Tax • Fuel Permit Tax • Gasoline Tax (42 cents per gallon) • Hunting License Tax • Inheritance Tax • Gross Receipts Tax • Inventory Tax • IRS Interest Charges IRS Penalties (tax on top of tax) • Liquor Tax • Luxury Taxes • Workers Comp Tax • Marriage License Tax • Medicare Tax • Personal Property Tax • Property Tax • Real Estate Tax • Service Charge Tax • Social Security Tax • Road Usage Tax • Sales Tax • Recreational Vehicle Tax • School Tax • State Income Tax • State Unemployment Tax (SUTA) • Telephone Federal Excise Tax • Telephone Federal Universal Service Fee Tax • Telephone Federal, State and Local Surcharge Taxes • Telephone Minimum Usage Surcharge Tax • Telephone Recurring and Non-recurring Charges Tax Taxes We Didn’t Have 100 Years Ago • Tax his land, • Tax his bed, • Tax the table • At which he's fed. • Tax his tractor, • Tax his mule, • Teach him taxes • Are the rule. • Tax his cow, • Tax his goat, • Tax his pants, • Tax his coat. • Tax his ties, • Tax his shirt, • Tax his work, • Tax his dirt. • Tax his tobacco, • Tax his drink, • Tax him if he • Tries to think. • Tax his cigars, • Tax his beers, • If he cries, then • Tax his tears. • Telephone State & Local Tax • Telephone Usage Charge Tax • Utility Taxes

  3. Flat Tax on Income: same % of income, different amounts, so Proportional Flat Tax on Products: same amount, different % of income, so Regressive 35% 33% 28% Marginal Tax Rates Progressive – takes a larger % from high income groups 25% 15% 10% Single - no tax on 1st $7,825 I only have to pay the FICA tax. 28% 25% 10% 15% 33% 35% $357,700+ $78,850 $7,825 $32,550 $164,550 $357,700 0 Standard Deduction [$5,350-dependent] [$15,650-married filing jointly] [7,825-single] [$11,200-HH]

  4. Our Progressive Tax System Is Like ALayeredCake 35% over $357,700 33% up to 357,700 28% up to $164,550 25% up to $78,850 15% up to $32,550 10% up to $16,050 No tax on 1st $8,025

  5. Proportional & Regressive Taxes Proportional – takes same 20% [not amount] from all income groups 20% Example: Medicare – 1.45% on all income earned. $100,000 $50,000 $40,000 $30,000 Pay $20,000 Pay $10,000 [So, not same amount but same %, 20%] Take that, you “low incomer.” 30% Regressive– takes a larger % from low income groups 20% Example: Sales Tax I’m a “low incomer.” 10% $40,000 $50,000 $30,000

  6. Flat Tax on Income: same % of income, differentamounts, soproportional. Flat Tax on Product: same amount, different % of income, soregressive. What kind oftaxes are these? Toll Road($1 per day) $10,000 $50,000 $200$200 2% .4% Flat Tax on Cigarettes[Excise][$1.41 cents pack] [1 pack day][1 pack day] $10,000 $100,000 $515$515 5% .5% Addicted State 6.25% Excise Tax on Two Identical $20,000 Autos BOHO $10,000 $100,000 $1,250$1,250 12.5% 1.25%

  7. What kind of taxes are these? Flat Tax on Income: same % of income, different amounts, soProportional Flat Tax on Products: same amount, different % of income, soRegressive Property Tax of 2.5% on $100,000 Houses $25,000 $50,000 [100,000 house] [$100,000 house] $2,500$2,500 10% 5% $100 Spent On The Lottery $20,000 $100,000 [$100 Lottery] [$100 Lottery] 5%.1% “The lottery tax is avoluntary regressivetax on morons.” What about the .20 a gallon gasoline tax? So – all of these taxes wereregressive. I played the lottery.”

  8. TAX RATE TAX RATE State (Cents per pack) Rank State (Cents per pack) Rank Alabama(1) 16.5 47 Nebraska 64 24 Alaska 200 4 Nevada 35 39 Arizona 200 4 New Hampshire 52 32 Arkansas(20) 59 26 New Jersey 258 1 California 87 19 New Mexico 91 18 Colorado 20 43 New York (1) 150 5 Connecticut 200 3 North Carolina 30 45 Delaware (3) 24 41 North Dakota 44 34 Florida 33.9 40 Ohio 55 29 Georgia 37 36 Oklahoma 23 42 Hawaii (30 130 7 Oregon 128 8 Idaho 57 27 Pennsylvania 100 12 Illinois (1) 98 17 Rhode Island 246 2 Indiana 55.5 28 South Carolina 7 51 Iowa 36 37 South Dakota 53 31 Kansas 29 20 Tennessee (1)(2) 20 48 Kentucky (2) 30 46 Texas 141 11 Louisiana 36 37 Utah 69.5 23 Maine 200 3 Vermont 119 10 Maryland 100 12 Virginia (1) 30 47 Massachusetts 151 4 Washington 203 3 Michigan 200 5 West Virginia 55 29 Minnesota 48 33 Wisconsin 77 21 Mississippi 18 49 Wyoming 60 25 Missouri (1) 17 50 Dist. Of Columbia 100 12 Montana 170 6 U.S. Median 90 State Excise Tax on Cigarettes Counties & cities may impose an additional tax on a pack of cigarettes. Also, the federal tax is 39 cents. NYC has an additional $1.50 for a total cigarette pack price of $7.50. 30 states have increased cigarette taxes since January 1, 2002 some twice. Every 10% increase reduces youth smoking by 7% and adult smoking by 2%.

  9. Causes For The National Debt Facts & Figures: Financial Price Of War Total Cost per ConflictCostPerson WW1 $125 bil. $2,489 WWII $600 bil. 20,388 Korea 336 bil. 2,266 Vietnam 494 bil. 2,204 Gulf War I 76 bil. 306 Gulf War II 438 bil.* 536 * Cost over $12 billion a month Causes: • Wars • Recessions • Tax Cuts • No political will The War in Iraq has cost $16,000 per family.

  10. Historical Record of the Marginal Tax Rate 91% on income over $200,000 91% 35% 2008

  11. Medicare tax– 1.45% for an individual [2.9% for self employed] for every dollar earned. Harrison Ford – received $25 million for 20 days work on a movie. 1.45% of $25 million = $362,500 x 2 = $725,000medicare tax. [Over his 35 years on the Big Screen, his films grossed over $10 bil. Jim Carrey – gets $20 million per movie, so his tax is $580,000. [1.45% of $20 million = $290,000 x 2 = $580,000.] Top Marginal Tax Rates YearTax Rate 1900 No Tax 1914 1% [over $3,000] [Only 1 in 270 paid this tax at all] 1930 30% [1 in every 32 was now paying taxes] 1940 81% [1 in every 3 was paying taxes] 1943 *Paycheck withholding (by the boss) was launched to stop cheating. 1950 [over $200,000] 91% 1970 70% [Everyone was paying with taxable Y] 1980 70% 2000 39.6% 200835% Marginal Tax Rate 1913-2008 [91% for dollars over $200,000]

  12. Do the rich pay their fair share of the taxes?And why is it the rich whoalways benefit from tax cuts?

  13. Ave. Tax Rate Top 1%[1,286,000] ($328,000+) paid 37%of all taxes–average 24% Top 5%[6,430,000] ($137,000+) paid 57% - average 21% Top 10%[12,861,000] ($99,000+) paid 68% – average 18.5% Top 25%[32,152,000] ($60,000+) paid 85% – average 15% Top 50%[64,305,000] ($30,000+) paid 97% – average 14% Bottom50%[64,305,000] (<$30,000) paid only 3.3% of all taxes. There 469 billionaires.[793 in world] There are 9.2 million millionaires. There are 40 millionaires in the U.S. Senate. Who Pays What In Federal Income Taxes

  14. Percent Federal Income Tax Paid by Different Income Percentiles 100% 90% 80% 70% 60% 40% 30% 20% 10% 97% 134 million filed tax returns but only 90 million paid any taxes. Our average tax rate was 14%. 85% 68% 57% $61,000 and over $30,000 and over 37% $99,000 and over $137,000 + $328 000 + 3.3% Bottom 5% Top 1% Top 5% Top 25% Top 10% Top 50%

  15. Let's Demonstrate Our Tax System In The Real World • Suppose that every day, ten men go out for beer and the bill for all ten comes • to $100. If they paid their bill the way we pay our taxes, it would go like this: • The first four men (the poorest) would pay nothing. • The fifth would pay $1. • The sixth would pay $3. • The seventh would pay $7. • The eighth would pay $12. • The ninth would pay $18. • The tenth man (the richest) would pay $59. So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. 'Since you are all such good customers, he said, 'I'm going to reduce the cost of your daily beer by $20. Drinksfor the ten nowcost just $80. The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his'fair share?' They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

  16. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.!  And so:The fifth man, like the first four, now paid nothing (100% savings). • The sixth now paid $2instead of $3 (33%savings). • The seventh now pay $5 instead of $7 (28%savings). • The eighth now paid $9 instead of $12 (25% savings) • The ninth now paid $14 instead of $18 (22% savings) • The tenth now paid $49 instead of $59 (16% savings). • Each of the 6 was better off than before. And the first 4 continued to drink for free. • But once outside the restaurant, the men began to compare their savings.'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth • man,' but he got $10!‘ • 'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that • he got ten times more than I!‘ • 'That's true!!' shouted the 7th man. 'Why should he get $10 back when I got only two? • The wealthy get all the breaks!''Wait a minute,' yelled the first four men in unison. 'We • didn't get anything. The system exploits the poor!'The nine men surrounded the tenth and beat him up. • The next night the tenth man didn't show up for drinks, so the nine sat down and had • beers without him. When it was time to pay the bill, they discovered something important. • They didn't have enough money between all of them for even half of the bill!And that is how our tax system works. • The people who pay the highest taxes get the most benefit from a tax reduction. Tax them • too much, attack them for being wealthy, and they just may not show up anymore. In fact, • they might start drinking overseas where the atmosphere is somewhat friendlier.

  17. Taxes • Taxes – mandatory payments made to the • government to cover the costs of public goods and • services (like national defense and highways). • 2.Tax Rate – percent of incometaken by the government. The Two Roles of Taxes A. Finance government operations and functions [regulations-F.D.A., public goods (highways), transfer payments, government & military pensions.] B. Influence economicbehavior of individuals & firms. 1). Excise taxes (tobacco, alcohol & gasoline) raise revenue and discourage their use. Canada quadrupled the tax on cigarettes and reduced consumption by one-third. • Three Tax Bases • Income • Wealth • Consumption

  18. Three Types of Taxes 3. Progressive Taxes- takes a larger percentof income as income rises [takes more from rich people]. Federal Income Tax of 10%, 15%, 25%, 28%, 33%, & 35% 4. Proportional Taxes(flat rate) – takes the same percent from all income groups. Ex: 20% on all income groups or 1.45 Medicare tax 5. Regressive Taxes– takes a larger percentagefrom low income groups. Ex: Sales and excise tax; any consumption tax.

  19. Two Principles Used To Judge Fairness 6. Ability-To-Payprinciple – people with moreincome or wealth should pay more taxes. It doesn’t make any difference what benefits or services they received. *Can notbe transferred to another person; tax with your name on it a. “Ability-to-pay based on income”– wages & salary, or any other payments-will pay based on their total dollar amount. Ex: Federal income tax b. “Ability-to-pay based on wealth”– people with more assets (houses, stocks, bonds) would pay taxes based on the total value. Ex: Inheritance and estate taxes, property taxes, and capital gains. 7. Benefits-Received principle– [consumption taxor user’s fee] – people who benefit bear its cost. The more they use, the more they pay. *Canbe transferred to another person [relates to services received] Ex: gasoline taxes, tolls, cigarettes, alcohol

  20. Sources of Government Revenue 1863 Yea! We don’t have to pay any federal income or SS taxes.

  21. Sources of Government Revenue 2007 We are paying about $1 trillion in taxes. 7% $179 B 8.Three major sources of federal taxes(90%) a.Individual income taxes b. Social Insurance c. Corporate income taxes 37% $884 bil. 11% $261 B 45% $1,096 Deficit $248 bil.

  22. Federal Expenditures Pensions and Income Security National Defense Health Interest on Public Debt Pensions & Income Security 35% Total Expenditures $2,654 Billion National Defense 20% All Other 15% Health 21% Interest 13%

  23. Federal Tax Revenues • Personal Income Tax • Marginal Tax Rate • Average Tax Rate Personal Income Tax 46%

  24. Federal Tax Revenues Personal Income Tax Payroll Tax Corporate Income Taxes Excise Taxes Total Tax Revenues $2,407billion Personal Income Tax 46% Excise Taxes 4% Payroll Taxes 38% All Other 4% Corporate Income Tax 8%

  25. 2006 Expenditures of$2.654 Revenues of$2.407 [Deficit of $248] Last Surplus

  26. Source of Government Taxes Individual Income Taxes – [50%] [$1 trillion] The U.S. had no individual income tax until 1913. This is a progressive tax on an individual’s total income based on ability-to-pay.[10%, 15%, 28%, 33%, and 35%] 9. Dependents pay no tax up to $5,350. In 1914, only workers who made over $3,000, paid 1%[$30 max]. Only 4% earned enough to file a tax return & only $28 million was collected. 10.Social Security Taxes(FICA[7.65%]-Federal Insurance Contribution Act) [6.2% of income up to $102,000] It is proportional up to $102,000, then it becomes regressive. [A person making $102,000 pays 2% SS tax but a personmaking $204,000 pays only 3.1%. Medicare tax – 1.45%on every dollar earned. This is a proportional tax. A person making $50,000, $100,000, or $500,000 would still pay 1.45% of his income.

  27. 11. Corporate Income Taxes – progressive federal taxes levied on a business corporation’s profits. Corporate Federal Tax Rate Under $50,000 15% $50,001-$75,000 25% $75,001-$100,000 34% $100,001-$335,000 39% $335,001-$10,000,000 34% $10,000,001-$15,000,000 35% $15,000,001-$18,333,333 38% $18,333,334 + 35%

  28. Other Federal Taxes – 10% 12.Excise tax – specialized sales tax on the production or sale ofparticular products (not levied on the individual’s income). Excise taxes are regressive because they take a larger % from low income groups. Excise taxes are levied on specific products like: gasoline, liquor, telephone services, tires, legal betting, and coal. In the early 90s, there was a luxury excise tax on autos over $30,000, boats, jewelry, and furs. This proved very unpopular so it was dropped. 15. Estate tax – tax levied on the assets of a person who dies and has assets in excess of $2.0 milliondollars. Estate taxes range from 18-50% of the value of the estate which makes this tax a progressive one. This tax is supposed to disappear in 2010 but reappear in 2011.

  29. Historical Record of the Marginal Tax Rate 14 91% on income over $200,000 91% 35% 2008

  30. GLOBAL PERSPECTIVE Government Finance Total Tax Revenue – Selected Nations Percent of Total Output-2004 10 20 30 40 50 Sweden Denmark Norway Finland France Italy United Kingdom Germany Canada Australia United States Japan South Korea 50.7 49.6 44.9 44.3 43.7 42.2 36.1 34.6 33.0 31.6 25.4 25.3 24.6 Source: Organization for Economic Cooperation and Development

  31. If you inherit $2 million dollars this year, how much do you get to keep? The Estate Tax

  32. Estate Tax [taxes on inheritances] The Federal Estate Tax is disappearing. An estate is exempt from federal estate taxes if it’s below the following thresholds. The Tax willdisappear in 2010, only to reappear in 2011. [tax of 55% on estates after the first million] $2 M tax free 2007 $2 M tax free 2008 $3.5 M tax free 2009 2010 No estate tax 2011 $1 M tax free If you live in one of thegold states, you might owe additional estate or inheritance tax, even after the federal G’s death tax disappears.

  33. 15. Gift tax – tax placed on the transfer of certain gifts of value, such as money ($11,000 or more) or other personal property. The person who gives the gift pays the gift tax. It also is progressive up to 50%. The estate & gift taxes account for only 1.3% of revenues. 16.Customs duties(tariffs) – tax on imported goods. Although they produced most of government revenues prior to 1913, they produce very little revenue today. During George Washington’s time, tariffs brought in over 99% of the government’s revenue.

  34. State and Local Taxes 17. The three most important state and local taxes are the sales tax(21%), property tax(18%), and the stateindividualincome tax(12%). 18. Sales tax – an indirect regressivetax levied on most products. The sales tax is not levied on baby clothing,food, and medicine. The sales tax in PBC is 61/2 percent of every dollar. Only 5 states, Alaska, Delaware, Montana, New Hampshire, and Oregon – do not have a sales tax. On average, a family of four, pays about $800 a year on the sales tax.

  35. STATE AND LOCAL Spending State Expenditures Education Public Welfare Health and Hospitals Highways [.20 a gallon] Public Safety Education 36% Health & Hospitals 8% Public Welfare 25% Highways 8% All Other 18% Public Safety 5%

  36. STATE AND LOCAL Revenues State Revenues Sales and Excise Tax Personal Income Tax Corporate Income Tax Licenses and Others Property Taxes & Other Taxes Sales & Excise Taxes 48% State Personal Income Tax 34% Property Taxes & Other Taxes 5% Corporate Income Tax 7% Licenses & Others 6%

  37. State, City, and County Sales Tax

  38. State Sales Tax

  39. STATE AND LOCAL Revenues Local Revenues Personal & Corporate IncomeTaxes Sales and Excise Taxes Property Taxes Property Taxes 74% Sales & Excise Taxes 16% Personal & Corporate Income Taxes 6% All Other 4%

  40. 19. Property Tax – tax on assets (mainly a tax on land and buildings). These taxes are also on furniture, autos, farm animals, stocks, bonds, and bank accounts. They finance education, police and fire protection. This tax is a regressive one because if two people own separate $100,000 homes, they both pay the same tax. State individual income tax – taxed by either the “graduated” or “flat-rate” Texas is one of 7 states with no state individual income tax. 20. Americans pay about 29 cents of every dollar in taxes. Tax breaks cost $400 billion in lost revenue each year. 21. The OfficeofManagementandBudget(OMB) devises the yearly budget for the president. It is about $2.9 trillion for 2007.

  41. Tax Cheating 22. Tax cheating amounts to about $310 billion a year. Who cheats the most? Self-employedpeople who are in charge of their own taxes like gardeners, carpet layers, who get paid in cash. Others are auto dealers, barbers, telemarketers, restaurant owners, accountants, doctors, and lawyers. Many overstate deductions. Over 60% of corporationspaid zero taxesfrom 1996-2000. Mencheat more than women. In 1987, the IRS began requiring taxpayers to report the SSN of all dependents. The next year 7 millionchildren vanished(9%). People were listing their dogs, cats and birds as dependents. Only about 20% of the disappearing dependents represented children who had been claimed by both parents after a divorce. Informerson tax cheaters can get you 1% of what they collect or 10% if you provide paperwork.

  42. 23.Guns[defense]or Butter[social programs]

  43. Deficits, Surpluses, & the Debt 24. Budget Deficit[ G > T] 25. Budget Surplus[ T > G] 26. Causes of budget deficits include: 1.) national emergencies 2.) providing national defense 3.) stabilizing the economy 4.) promotion of economic well-being of citizens. 27.National Debt- total amount of money G owes. 28. Budget deficit– debt during one fiscal year [$162 bil.] The debt totals $9.3 trillion. The interest on the debt will cost $243 billion or 10 cents of each dollar. Most of the Public Debt is held internally.

  44. $9.4 tril. The “Debt” and The “Deficit” Flow ($162 bil.) Reasons for Debt 1. Lack of political will 2. Tax cuts 3. Recessions (transfers) 4. Wartime financing Stock ($9.4 trillion) Attention Deficit Disorder [ADD] Congressmen have trouble focusing attention on the deficit. $9.4

  45. $9.4 Trillion Debt $33,000 Per Capita 3 3, 9, 4 140, The Debt is increasing by $1 million per minute. $1.58 billion per day is being added to the debt.

  46. Annually Balanced Budget • Cyclically Balanced Budget • Functional Finance Three Budget Philosophies

  47. [A. Annually Balanced; B. Cyclically Balanced; C. Functional Finance] Three Budget Philosophies “G” Economy “Earth Orbits Sun” Annually Balanced Budget – each time the earth orbits the sun we should balance the budget. This would put the G in an economic straitjacket as we couldn’t fight recessions with deficit spending. This would be like pouring water on a drowning man. We usedto worship at the alter of a balanced budget prior to the Great Depression. 49 states require this. Balancing the budget during a recession wouldnot be counter-cyclical, but pro-cyclical. Increasing taxes during a recession would worsen the recession. Running asurplus during boomtimes and giving the money back would be inflationary.

  48. Inflation “Raise taxes” 2. Cyclically Balanced Budget Tax Cuts Raise Taxes Recession “Tax cut” “Balanced” “DeficitSpending” Cyclically Balanced Budget – run deficits during recessions & surpluses during expansionsso the budget is balanced not each year but over the course of the business cycle. Economic wisdom tells us we should have deficits in lean years and surpluses in fat years. There is nothing “sacred about 12 months asan accounting period.” The government could conduct counter-cyclical fiscal policy and balance its budget over a period of years. The basic problem of this philosophy is that fluctuations are not usually symmetrical enough to ensure that the surplus will offset the deficit.

  49. 3. Functional Finance U.S. Economy “Balance the economy, not the budget.” Functional Finance – balance the economy not the budget. The annual or cyclically balanced budget is of secondary importance. The important thing is to provide for non-inflationary, FE & ensure the economy produces its potential GDP. If there are chronic deficitsor surpluses, so be it. Deficits are minor problems, compared to inflation or recessions.

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