Which is the fairest way for
income taxes?
Take the survey & discuss your answers.
Everyone pays the same percentage.
Those with higher incomes pay a higher
percentage.
Have no income tax & raise money
another way.
Chapter 12– Taxes and Taxation
Republican
political
cartoon on
taxes:
https://unitenews.wordpress.com/20
12/07/
Democratic
political
cartoon on
taxes:
What are
“Good Taxes”?
According to Adam
Smith:
Simple to understand
Avoid negative
incentives
Avoid loopholes
Equity-fairness
Convenience &
Efficiency
Essential
Questions
Why & how does the
government
redistribute income?
How do regressive,
progressive, and
proportional taxes
affect redistribution
of income?
The Main Ideas
• The government redistributes income
-through different tax rate structures & creates a safety net
that helps alleviates poverty & support social services
• Regressive, progressive, and proportional taxes decide
-the amount of taxes an individual must pay
Where Does the Money Come From?
Federal Government Income Broken Down
What Public Goods Does the Money Buy?
Federal Government Spending Broken Down
Where Does State Money Come From?
State Income Broken Down
What Public Goods Does the Money Buy?
State Government Spending Broken Down
What doof
“Some other
the most popular
countries
countries do
thatfor
offer the financial
taxes?
benefit of having no income
tax are Bermuda, Monaco, the
Bahamas, Andorra and the United
Arab Emirates (UAE).”
Investopedia.com
What % do other countries take for taxes?
Why Do We Pay Taxes?
So that the
governments
can…
o Pay for goods
the general
public uses
o Pay for services
the general
public uses
Progressive, Regressive, and Proportional
Taxes
Progressive Tax: As income increases, tax percentage increases
Example) Income of $20,000 pays 15%, vs. income of
$100,000 pays 25%
Regressive Tax: As income increases, tax percentage decreases
Example) You can more easily afford to pay sales taxes with
a higher income
Proportional Tax: Regardless of income, tax percentage remains the
same
Example) Everyone pays 10% at all income levels
Federal vs. State/Local Taxes
STATE/LOCAL INFORMATION FEDERAL INFORMATION
o Most income from o Most income from
– Sales taxes – Income taxes
- Income & Property taxes – Payroll taxes
- Grants from Fed. gov’t • Social security taxes
o Income pays for • Medicare taxes
• Unemployment taxes
- Education
- Public Welfare o Income pays for
- Roads and repairs – Military defense
- Public Safety – Highways and roads
• Police and Fire – Other gov’t programs
Types of Taxes Income Taxes
Income Taxes
• Are charged Federally and by the State
– Rates are much different
• Federal Income Rate is much higher than the State
• Charged against individuals and corporations
• Usually considered a “progressive tax”
– Federal rates get higher as income increases & so do most state
rates
Types of Taxes – Payroll Taxes
• These are the other things taken from your paycheck each time
• FICA – Federal Insurance Contributions Act
– Also known as Social Security
– Created to make sure people were “secure” when they were no longer in
the workforce (1935)
• Followed the financial issues of the 20’s
• This is a regressive tax
• Medicare Tax
– Additional tax to help alleviate medical costs to government when people
are unable to pay bills themselves
• This is a proportional tax
Types of Taxes – Transaction and Property Taxes
o Sales Tax
• Percentage charged upon the purchase of certain items
• This is a regressive tax – poorer people pay more.
o Real Estate Tax
• Percentage charged on the value of land owned
• This is a proportional tax.
o Personal Property Tax
• Percentage charged on all large personal items
• Examples: Cars, Boats, Trucks, RVs, etc.
• This is a proportional tax.
Possible Additional Taxes
o Localities may opt to charge additional fees.
• Registration fees – proportional tax usually
• Licensure fees – proportional tax usually
• Additional sales tax fees -regressive taxes
• Gas taxes or transportation taxes-regressive taxes
o Excise taxes – taxes to try to stop a behavior
• Additional taxes on cigarettes and alcohol
✓ Goal is to make them too expensive for people to buy
• These are regressive taxes.
How much money you want to be earning
(per year) when you are 30?
What percentage do you think that
income has to pay to the government in
taxes (in the US)?
In reality…
US Federal Tax Rates: (only 3 % of Americans make over $250,000)
Add 10 -15 % more depending on which state you work in
Income Tax in USA
IRS – tax collection agency in USA
Taxes are deducted throughout year
Every citizen must file every year by:
If you paid more during the year then you need to:
you get a refund
If you paid less during the year then you need to:
pay the difference
What Are Tax Deductions & Loopholes?
Tax Deduction – reduction of your taxable income
o Lowers the overall amount (base) you will be charged a
tax on
• Examples: local taxes paid, student loans,
charitable contributions, home mortgage
interest
• These are deducted b/c they were already paid
to a gov’t agency or charity
Tax Loophole-
A provision in the laws governing taxation
that allows people to reduce their taxes.
• Tax incentives
• “write offs”
What are tax credits?
Tax Credit – reduces the actual tax
o Government encourages public to purchase specific
products for the benefit to the general public
• Example: Hybrid cars, energy efficient
windows/appliances
• Helps in reducing other bills for government
long term
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tax-calculator
What does the Federal & State Governments take out
of my pay?
