TAXES

1. TAXES Chapter 14

2. Federal Power to Tax • Article I, Section 8, Clause 1 • Congress shall lay and collect taxes, duties, imposts • Article I, Section 9, Clause 4 • No capitation or other direct tax • Sixteenth Amendment • Power to lay and collect taxes on incomes • Ratified 1913

3. State Power to Tax • State Constitutions • Citizens of the state • Ballot Issues

4. Local Power to Tax • State • Charter • Constitution • People • Local • Levy

5. Limitations for Taxation • Federal only • Same in every state • No religious establishments • No exports • Individual personal benefit

6. Incidence of a tax • Who has the final burden • Who actually pays the bill • elastic/inelastic

7. Good Taxes • Simple • easily understood, easily recorded • Efficient • no time or money wasted in collection • Certain • clear to tax payer, predictable • Equitable • fair, burden is shared

8. Tax Structures • Proportional • % of tax is the same for all incomes • “flat tax” FICA • Progressive • % goes up when income goes up • Federal income tax • Regressive • % goes up when income goes down • Sales tax

9. Graduated Income Tax • Tax Schedule uses a multiplier to adjust for each “bracket” people should pay from • First part of income not taxed • Each additional amount taxed by increasing percentages • Almost 50% of Americans pay no federal income tax • Highest level is around 35%

10. Single Filing Status - 2012 • 10% on taxable income from $0 to $8,700 • 15% on taxable income over $8,700 to $35,350 • 25% on taxable income over $35,350 to $85,650 • 28% on taxable income over $85,650 to $178,650 • 33% on taxable income over $178,650 to $388,350 • 35% on taxable income over $388,350.

11. Sales Tax Person A Person B • $30,000 income • $20,000 purchases • 10% sales tax • $2000 taxes • 6.7% • $100,000 income • $60,000 purchases • 10% sales tax • $6000 • 6.0%

12. Federal Taxes • Corporate • Paid on income earned by companies • FICA • Federal Insurance Contribution Act • Import • Tariff – tax on goods coming into country • Income • Graduated, pay-as-you-earn tax on income

13. Federal Income Tax • Pay-as-you-earn • Paid on every paycheck • Ease burden and regular revenues • Withholding • Taken out of employees pay • Exemptions • Amount subtracted from gross income • Deductions • Variable amounts subtracted from gross income • Taxable Income • Amount on which tax must be paid • Gross income – (exemptions+deductions)

14. Tax Freedom Day • Economists began keeping track of the number of days it would take the average worker to pay off his/her taxes if they had to pay the government first • The % of federal income tax to the % of days/year • 1913 – January 30 • Latest – May 9 • Today?

15. Federal Spending • Mandatory • Required by existing law • Entitlements • Programs people automatically qualify for when they meet eligibility • Discretionary • Planners can make choices • 30% of budget • $1,200,000,000,000

16. State Spending • Balanced Budget • Revenues = Spending • Operating Budget • Day-to-day expenditures • supplies, salaries, equipment • Capital Budget • One time investment • construction, infrastructure, investment

17. Examples • State • Taxes • Sales, Income, Intergovernmental • Spending • Public Welfare, Education • Local • Taxes • Sales, Property, Income • Spending • Education, Public Safety