DOCUMENT RESUME TITLE Taxes and the … Mrs. Helen B. Power, A.B., Litt.D., L.H.D., ... Troy -...

DOCUMENT RESUME

ED 083 326 UD 013 846

AUTHOR Mueller, Gustave E.TITLE Taxes and the Consumer. One of a Series for Expanded

Programs in Consumer Education.INSTITUTION New York State Education Dept., Albany. Bureau of

Secondary Curriculum Development.PUB DATE 29 Mar 73NOTE 127p.

EDRS PRICE MF-$0.65 HC-$6.58DESCRIPTORS Consumer Economics; *Consumer Education; Consumer

Science; Curriculum Development; *Economic Education;Economics; Federal Government; *High SchoolCurriculum; *Instructional Materials; MoneyManagement; State Government; Tax Allocation; *Taxes;Textbooks; Workbooks

ABSTRACTIn 1967, the State Education Department published

"Consumer Education--Materials for an Elective Course." This materialhas since been introduced into more than 500 of the New York Statehigh schools. As a result of the interest in Consumer Education inthe State and Nation, the Department has begun the preparation of aseries of modules--Expanded Programs of Consumer Education. Thismodule is the ninth to be produced. Nothing touches the lives of thedisadvantaged more than the constant struggle to stretch limitedfinancial resources to meet the increasing costs of living. Thismodule is designed in the hope that it will help the poor to makebetter, use of their income, as well as with the expectation thatthose of higher income will be more understanding of the problems oftheir fellow citizens. The modules in this series are being preparedas separate publications to provide greater flexibility. Thesuggestions to the teacher found in "Consumer Education--Materialsfor an Elective Course," pages 1-4, apply equally to all of themodules: (Author/JM)

FILMED FROM BEST AVAILABLE COPY

TAXES AND THE CONSUMER

One of a series for Expanded Programs in Consumer Education

AMONG THE RIGHTSAND RESPONSIBILITIESCITIZENS SHAREIS THAT OFPAYINGTAXES...

U.S, DEPARTMENT OF HEALTH,EDUCATION & WELFARENATIONAL INSTITUTE OF

EDUCATIONTHIS DOCUMENT HAS SEEN REPRO-DUCED EXACTLY AS RECEIVED FROMTHE PERSON OR ORGANIZATION ORIGINSTING IT. POINTS OF VIEW OR OPINIONSSTATED DO NOT NECESSARILY REPRESENTOFFICIAL NATIONAL INSTITUTE OFEDUCATION POSITION OR POLICY,

The University of the State of New York/The State Education DepartmentBureau of Secondary Curriculum. Development/A:bany/1973

THE UNIVERSITY OF THE STATE OF NEW YORK

Regents of the University (with years when terms expire)

1984 Joseph W. McGovern, A.B., J.D., L.H.D., LL.D., D.C.L.,Chancellbr

1985 Everett J. Penny, B.C.S., D.C.S.,Vice Chancellor

1978 Alexander J. Allan, Jr., LL.D., Litt.D.1987 Carl H. Pforzheimer, Jr., A.B., M.B.A., D.C.S., H.H.D.1975 Edward M. M. Warburg, B.S., L.H.D.1977 Joseph T. King, LL.B.1974 Joseph C. Indelicato, M.D.1976 Mrs. Helen B. Power, A.B., Litt.D., L.H.D., LL.D.1979 Francis R. McGinley, B.S., J.D., LL.D.1980 Max J. Rubin, LL.B., L.H.D.1986 Kenneth B. Clark, A.B., M.S., Ph.D., LL.D., L.H.D.,

D.Sc.

1982 Stephen K. Bailey, A.B., B.A., M.A., Ph.D., LL.D.1983 Harold E. Newcomb, B.A.1981 Theodore M. Black, A.B., Litt.D.1988 Willard A. Genrich, LL.B.

President of the University and Commissioner of EducationEwald B. Nyquist

Executive Deputy Commissioner of EducationGordon M. Ambach

New York

White PlainsTroy

- PurchaseNew YorkQueensBrooklynRochesterGlens FallsNew YorkHastings on

Hudson- Syracuse

OwegoSands PointBuffalo

Deputy Commissioner for Elementary, Secondary, and Continuing EducationThomas D. Sheldon

Associate.Commissioner for Instructional ServicesWilliam L. Bitner III

Assistant Commissioner for Instructional Services (General Education)Bernard F. Haake

Director, Division of School SupervisionGordon E. Van Hooft

Chief, Bureau of Secondary Curriculum Development

FOREWORD

In 1967, the State Education Department published "ConsumerEducation Materials for an Elective Course." This material has sincebeen introduced into more than 500 of the New York State high schools.As a result of the interest in Consumer Education in-the State and Nation,the Department has begun the preparation of a series of modules --ExpandedPrograms of Consumer Education. This module, Taxes and the Consumer, isthe ninth to be produced. Those already distributed are

Consumer Issues and ActionEducation and the ConsumerThe Consumer and RecreationConsumer Problems of the PoorThe Consumer and His Health DollarBeauty Products and the ConsumerThe Consumer and TransportationCredit and the Consumer

It is expected that other modules will be produced in the fieldsof :

Law and the ConsumerThe. Car and the Conspmer

Nothing, touches the lives of the disadvantaged more than the constantstruggle to stretch limited financial resources to meet the increasingcosts of living. This module is designed in the hope that it will helpthe poor to make better use of their income, as well as with the expecta-tion that those of higher income will be more understanding of the problemsof their fellow citizens.

Unlike the original syllabus, where 12 units covering various phasesof Consumer Education were bound together, the modules in Expanded Programsof Consumer Education are being prepared as separate publications toprovide greater flexibility. Each of the modules in the series may beused as a discrete unit or with other units in the series. The modulesmay be presented as a semester or part of a semester course, or presented inconjunction with the original syllabus which covers such areas as thepurchase of food; shelter; appliances; automobiles; and a consideration ofcredit; money management; fraud, quackery,and deception; banking andsavings; life and health insurance; security programs; and consumer law.

It is hoped that the presentation of the modules as separate publica-tions will tend toward flexibility in their use as mini-courses in suchfields as social studies, business education, home economics, industrialarts, agriculture, and other areas of the curriculum.

The suggestions to the teacher found in "Consumer Education -- Materialsfor an Elective Course," pages 1-4, apply equally to each of these modules.The reaction and suggestions of those using these materials in the fieldwill be helpful to the Department in planning further materials for ConsumerEducation and in making necessary revisions of the material.

iii

The original material for this module was developed and written byGustave E. Mueller, associate professor of Education (Business), MilneSchool of the State University of New York at Albany. Hillis K. Idleman,associate in secondary curriculum development, was in charge of the project,edited the material, and arranged for its publication.

The Department acknowledges with appreciation the suggestions of thosewho contributed advice or material for inclusion in the manuscript and inparticular the help of

Norman F. Gallman, Commissioner of Taxation and FinanceDavid Hodgkins, Sales/Use Tax Unit, New York State Department ofTaxation and Finande

William A. Craven, New York State Department of Taxation and FinanceDaria Zawyrucha, Business Department, Hauppauge Central Schools,

Hauppauge, New York

Gordon E. Van HooftDirector, Division ofSchool Supervision

iv

CONTENTS

Page

Foreword iii

Introduction 1

Budgeting Individual, Government, Schools 6

Why Should High School Students Study Budgeting? .. ... . . 10

Exactly What Is a Budget? 12

What Is a Government Budget? 12

Why Do Governments Prepare Budgets? 12

Government Budgets Federal, New York State, New York City . . 19

Is the Federal Debt Too'Big? 27

Is the Interest On the National Debt Burdensome? 29

What Is State Revenue Sharing? 34

Proposed Budget-City of New York 1972-73 37

What Is Federal Revenue Sharing? 40Does the Federal Government ,Have Surplus Funds To Share? 41

Are There Limits to Government Spending? 42

Taxes Types, Uses, Characteristics 45

Sales and Use Taxes 50

What Is a Sales Tax? 56

What Is a Use Tax? 57

Who Collects the Sales Tax From the ConsUmer? 58

Does the State of New York Lose Money Because Vendors Fail ToRemit Sales Taxes? 59

Are All Retail Purchases of Tangible, Personal Property Subjectto the Sales Tax? 59

Are All Services Provided to Consumers Taxable? 61

Are. Sales by Farmers.Exempt From Sales Taxes? 65Do All States Exempt Food Sales From Sales Taxes? 66Which Levels of Government May Levy Sales Taxes in New York? . . 66

Do All Counties Within the State Levy Sales (Or CompensatingUse) Taxes at the Same Rate? 67

What Is the Meaning of the Term "RATE"? 67

If a Product Sells for a Price Which Includes the Sales Tax,How Do You Find the Amount of the Sales Tax? 68

In 1971, New York State Increased the State Sales Tax Rate From3 Percent to 4 Percent 76

What Is a Regressive Tax? 77'Is a Sales Tax a Regressive Tax? 77

What Is a Progressive Tax? 77

What Is a Proportional Tax? 78What Is an Excise Tax? How Does It Differ From a Sales Tax? 79

Why Do Governments Impose Regressive Sales Taxes Rather ThanProgressive Taxes? 79

Are All People in Agreement That the Sales Tax Is an Unfair Tax? 80

Could We Adopt a Single Tax? 81

What Is a "VIABLE" Tax System 82

Value-Added Taxes, "VAT" 84

What Is a Value-Added Tax? 85

CONTENTS(Cont'd.)Page

-When Paying the "VAT" On the Sale of a Finished Product, Wouldthe Manufacturer Be Given Credit for VAT Paid on Materials? . . . 85

Is the Value-Added Tax Essentially a Sales Tax Paid by Consumer,? . 90

Is This_Burden on the Consumer a Major Objection to VAT? 90Could Essential Items Be Exempted From the VAT? 91

What Other Objections Have Been Made to VAT? 91

What Advantages Are Claimed for VAT? 92May a State Impose a Value-Added Tax? 92Could a Value-Added Tax Replace the Federal Income Tax? 93

Real Property Taxes 94What Is the Meaning of the Term "Property"? 96What Are the Main Types of Property? 96Is Personal Property Taxed in New York? 97What Is the Meaning of the Term "TITLE"? 97Does the Person Who Rents Property Have Title to the Property? . 97

Who Is Responsible for Paying the Real Property Tax? 98What Happens If the Owner. Pays His Taxes After They Become Due? . 98

What Happens If the Owner Fails To Pay His Taxes? 98

What Branches of Government Levy Real Property 'Taxes? 99

How Do Local Governments Use the Money They Collect.in Taxes? . . 100

What Factors Influence the Amount of Money To Be Raised by LocalReal Property Taxes? 100

How Are Tax Rates Determined on Real Property? 101

Is the Assessed Value of Real Property Equal to the Full Value? . 102

What Is an Equalization Rate? 103If You Know the Equalization Rate and the Assessed Value, How DoYou Find the Full Value? 103

If You Know thv Recent Market Price of a Piece of Property, HowCan You Estimate the Cost of Property Taxes? 103

How Can the Equalization Rate Be Used To Judge the RelativeFairness of the Assessed Value of Two Pieces of Property? 104

What Are Some Other Purposes for Which Equalization Rates AreUsed? 105

What Is the Grievance Procedure? 105Do Real Property Taxes Provide an Equal Educational Opportunity? 108

Are Senior Citizens Eligible for Tax Relief on Their Homes? 109

Federal and New York State Income Taxes 110Is the United States the Only Country That Levies an Income Tax? :113

Is New York State the Only State That Levies an Income Tax? 113Is New York City the Only City That Has Levied a Tax on Incomes? 114Are Federal and New York State Individual Income Taxes Regressive,

Proportional, or Progressive? 114Do All Taxpayers With Big Incomes Pay High Progressive IncomeTaxes? 117

What Penalties May Be Imposed for Failure To Pay Income Taxes? .. 118What Records Must a Taxpayer Keep? 118

Summary 119

vi

NORMAN F. GALLMANCOMMISSIONER OF TAXATION AND FINANCE

PRESIDENT TAX COMMISSION

STATE OF NEW YORKDEPARTMENT OF

TAXATION AND FINANCEALBANY, NEW YORK 12227

March 29, 1973

Mr. Hillis K. Idleman, AgsociateBureau of Secondary Curriculum DevelopmentThe University of the State of New YorkThe State Education DepartmentAlbany, New York 12224.

Dear Mr. Idleman:

The high schc.ol teaching module, Taxes and the Consumer,has been reviewed by the New York State Department of Taxationand Finance. I wish to congratulate you for planning thistype of elective teaching program for New York students.

Taxes are a complex and, therefore, difficult subject.Yet understanding how they affect individual taxpayers andthe economy as a whole, as well as the government benefitsthey make possible, are essential if we are to have.an in-formed and responsive citizenry.

Your presentation of the subject of taxation is in-teresting, informative and very timely considering thesignificant changes currently taking place or under studyregarding our Federal, State and local tax systems.

Sincerely,

NORMAN GAL NCommissioner

vii

INTRODUCTION

"Nothing is certain but death and taxes."Franklin

1

THE CONSUMER AND HIS TAXES

INTRODUCTION

Taxation is of increasing concern to consumers since each additionallevy reduces the amount of disposable income (gross pay minus taxes) thatcould be available for other needs and wants. All levels of government andschool districts are spending more money than ever before. Taxpayers aredisturbed that taxes are too high. Yet, in some parts of the United States,schools have to close before the end of the school year for lack of funds.School budgets are often voted down. Taxpayers are protesting high taxes.Despite this, many vital public needs are neglected, including health prob-lems. Our public transportation system is inadequate and other public needscannot be met due to lack of funds.

Part of the increase in expenditures can be attributed to inflation,i.e., the tax dollar doesn't buy as much in commodities or services as itdid because of rising prices and wages. Other costs have skyrocketed dueto increased expenditures for defense and public demands for more servicesin the form of expanded educational facilities and programs, new highways,environmental control programs, increased recreational facilities, bettermedical and dental care, increased welfare payments and a host of otherprograms.

Taxation has become a dilemma for legislators who must weigh the demandsfor increased services against the demands for decreased spending. This isnot just an economic problem. Important political and social considerationsare involved. Value judgments must be made to determine who is to benefitfrom governmental programs and who is to pay the bill. Legislators mustchoose from among alternative programs.

Where does the consumer education teacher fit into this picture? Quiteobviously, consumers are vitally concerned. After all, they pad' a majorpart of increased taxes in the form of direct or indirect taxes. Yet, verylittle has been done to prepare students to make intelligent judgments onthese important issues. One place to start is in the consumer educationclassroom.

Teaching about taxes is a tough job. It requires dedication on the partof the teacher and continuous study to develop effe'tive teaching materialsand methods of presentation. Textbooks alone are not sufficient. To

vitalize this subject requires constant reference to articles appearing inthe news media and other sources. Student-teacher interaction to changes orproposed modifications of our tax system should help dramatize this subject.

Whenever practicable, students should be encouraged to discuss theseproblems at home. Or, students may reproduce tax news releases to distrib-ute to their parents and other interested parties. Frequent use shouldbe made of outside resource people such as State and local governmentofficials, school business managers, school administrators, representativesof taxpayers' associations, and the League of Women Voters.

STATEGOVERNMENTS,U.S.

LOCAL

GOVERNMENTS,U.S.

FEDERAL GOVT.DOMESTIC*

INCREASE IN ALL GOVERNMENT EXPENDITURES

United States 1950-1;69

Per Cent

0 100% 200% 300% 400%

*Excludes defense, international and space expenditures

SOURCE: U. S. Bureau of the Census

3

Consumer education teachers should not hesitate to encomia-age discus-sions of controversial issues. The teacher should avoid in/ertetting hisvalue judgments until his students have expressed their opimiions. Theteacher's function is not to form public opinion ethough ham should feelfree to present points of view which help to expose the issues to broaddiscussion. He should provide a forum for intelligent discussion of con-troversial questions and assist students in developing a thorough under-standing of the issues under discussion.

Students should not blindly accept the present tax system as perfector assume that all governmental programs contribute to the welfare of thecommunity, nor should they condemn it without reliable information. Manysuggestions for changes in our tax system have been made in recent years.

Numerous articles and books have criticized the so-called "loopholes"available to taxpayers in the high income brackets. Students should be-come familiar with tax provisions that enahle some individuals and corporations to minimize their tax obligations, such as the special tax treatmentafforded oil and ps producers, speculators (or investors) in real estateand securities, and investors in tax-free municipal bonds. Students shouldbe familiar with the reasons why these provisions exist and their costs interms of reduced taxes.

Changing our system of taxation lies within the power of the people.The most effective means of changing our tax laws is through the exercise ofthe right to vote and through direct communication with legislators. Thesystem is not perfett, but with patience and sustained effort it can bemodified.

Paying taxes is painful. Money is taken from the taxpayer and givento the government. If taxpayers feel that the taxes they pay contributeto their well-being, they don't, as a rule, complain. But, if taxpayersfeel that their money is being wasted, that they are being taxed un-reasonably, or opportunities exist to pay lower taxes in a nearby location,tax avoidance and evasion may become widespread and lead to tax revolts orviolence such as occurred at the time of the American Revolution. Studentsshould know what benefits they receive for their tax dollar.

Voters in a democracy should be'well-informed concerning tax laws andshould become involved in promoting equitable tax systems. This is one ofthe most effective means for citizens to participate in the democraticprocess and to improve the quality of government.

SELECTING INSTRUCTIONAL MATERIALS

In selecting suitable materials, the teacher must, of course:, takeinto consideration the interests and abilities of his students. However,despite the complexity of this subject, every effort should be made togive all students a basic understanding of the most important aspects oftaxation. For example, most students should become familiar with thebroad concepts pertaining to governmental and school budgets, i.e., themajor sources of revenue and the major categories of expenditures. Students

4

ought also to understand the difference between regressive, proportional,and progressive taxes. Recently, "value-added" taxes have beensuggested as a new method of taxation. .Students should learn how this taxwould be applied and what the implications of this form of taxation may beto them and their parents.

In using the materials which follow, teachers undoubtedly will stresscertain objectives more than others. This is as it should be. After all,the teacher's function is to meet the needs of his students. He undoubt-edly will develop additional objectives and materials designed to implementthe introduction of new topics. The subject of taxes is a dynamic one.Teaching programs should be constantly revised to enable students to betterunderstand the subject and td develop new topics for class discussion.Numerous reference materials are cited. These represent only a fractionof the materials available. Resourceful teachers w411 fild many more.

Caution: Every attempt has been made to updatethe materials presented in this unit.But teachers should be on the alertfor changes in tax laws and revisetheir teaching materials accordingly.

Consumer education teachers can contribute to citizenship educationby helping their students to better understand our Federal,.State, andlocal tax systems and by guiding future citizens in developing rationalattitudes toward paying reasonable taxes. Students should know that taxevasion, in addition to being unlawful, defeats the purposes for whichtaxes are levied.

Those who shirk paying their fair share of taxes shift their respon-sibility to others who are already bearing their fair share of the taxload. Students should become familiar with the many types of servicesprovided by all levels of government. One way in which this may be ac-complished is by asking students to imagine what would happen if theirlocal school district were forced to make drastic cuts in appropriationsfor textbooks, athletics, art supplies, teachers' salaries, and fuel oil;or,if a municipality were unable to provide funds for fire protection,garbage collection, police protection and similar services; or, if theFederal Government ran out of money to make social security payments tothe elderly.

It is important that students realize that governments provide manyvaluable services without which modern societies cannot survive. Any well-rounded presentation or discussion of taxes should stress the positivecontributions that our government can make to our society through taxcollections and the implementation of worthwhile governmental programs.In recent years the defects and inadequacies Jf our tax system havereceived so much negative comment in the press that students, as well asthe general public, may be inclined to overlook the many worthwhile serviceswhich governments provide. The teacher of consumer education should giveboth sides of the story adequate coverage.

5

BUDGETING

Individual

Government

Schools

BACKGROUND MATERIAL FOR TEACHERS

Budgeting

Why should high school students study government budgeting? Shouldn'tthis subject really be left to professionals and graduate students of publicfinance? -Some authorities might answer in the affirmative.

However, in a democratic society, substantial economic and culturalactivity is generated by government and school programs. The general publicshould, therefore,gain some experience in making critical judgmentsregarding (1) the purposes for which their money is being spent and (2) theimpact various types of taxes have on their pocketbooks.

Citizens frequently are asked to vote on state, local, and school bondissues and school budgets. As voters they make important decisions regard-ing governmental and school programs. Yet, many voters lack sufficient under-standing of public finance to participate intelligently in this vitalpolitical process.

Before introducing the mechanics of budget making, the instructorshould be certain the students know why an understanding of budgeting isimportant to them as individuals and as members of society. As citizens,they have a right to know how the government proposes to spend their moneyand to whom the costs of government are to be charged.

As a prerequisite to studying government budgets, personal or familybudgets should be presented. Even though many individuals and families donot prepare formal budgets, they may make short-term estimates of futureincome and expenditures. This is not the best procedure, but it is a formof budgeting. If students are familiar with this process, they canacquire abasic understanding of more complicated budgeting procedures.

The following are some of the concepts encountered in budgeting withwhich students should become familiar:

. A budget is an estimate of anticipated revenue (income) and expenditures.(outgo) for a future period.

. If actual revenue exceeds expenditures, a surplus results. This surplusmay be used to finance expenditures in future periods to establish a"rainy day" fund for emergencies or to reduce taxes.

It actual expenditures exceed actual revenues, a deficit results. If agovernment or school operates at a deficit, it may have to (1) borrowmoney (by issuing bonds or notes) to provide funds not provided by taxes,(2) use surplus funds from prior periods to meet current expenditures,or(3) postpone payment for goods and services purchased to the next fiscalperiod. ('In government parlance this is called "rolling over" the pay-ment of some bills to the next fiscal period. This practice generally isfrowned upon; but sometimes this is unavoidable due to a sharp decreasein revenues during busineSs recessions or due to extraordinary ex-penditures caused by disasters, famine, epidemics, etc. Students shouldrealize that if they or the government "roll over" their debts for toolong a period, their credit may suffer.)

7

. When preparing a budget, conservative,but not unrealistic, estimates ofincome should be made. Estimates of expenditures should provide reason-able provision for contingencies. Governments have been known to sub-stantially understate anticipated revenues and to overstate anticipatedexpenditures so as to create a surplus. This generally is consideredpoor practice. The public has a right to receive reliable information.

. In preparing a budget, it is necessary to select from among alternativeprograms those items to be funded. Governments, as well as individuals,cannot satisfy all their wants nor sometimes even all their needs.If a community needs a mass transit system to reduce pollution, it mayhave to cut down on expenditures for highways. Or, if welfare paymentsare increased, the allocations for parks and recreation may have to becut. The principle of "You can't have your cake and eat it too" isapplicable despite the frequently expressed belief that governments haveunlimited funds.

. Merely preparing a budget is not enough. Determination (discipline) isrequired to operate within a budget. This discipline applies to govern-ments as well as to individuals.

. Government and school budgeting can become more effective if the generalpublic participates in the budget-making process. Students should beencouraged to attend budget meetings of school boards and local govern-ments; and they should become familiar with. State and Federal budgets.

. Copies of a proposed budget should be widely distributed well in advanceof budget hearings so that interested parties may have sufficient timeto digest and react to the-proposed budget.

. Whenever feasible, receipts and expenditures for previous years as wellas current budget amounts should be included in a budget proposal. Thisfacilitates meaningful comparison.

. Persons responsible for preparing budgets should consider both thewillingness and ability of taxpayers'to pay for government services.Continually ignoring the taxpayer can lead to a tax "rebellion."

At the end of a fiscal period, a financial report of actual receipts andexpenditures should be publiShed. A simplified version of such a report ,

follows:

Village of Golden Heights

General Fund

Statement of Receipts, Expenditures, and BalancesJanuary 1, 1973 to December 31, 1973

Cash balance: Jan. 1, 1973 $10,000.00Receipts: Jan. 1,1973 -Dec. 31, 1973 50,000.00 *Total cash available 60,000.00

Expenditures: Jan. 1, 1973-Dec. 31, 1973 58,000.00 *Balance on hand, Dec. 31, 1973 $ 2,000.00.

*Categories of receipts and expenditures may be listed.

8

. Surplus fu3ds should be wisely invested to earn interest and thusincrease revenues. Municipalities and school boards frequently investin short-term certificates of deposit, U.S. Treasury bills, U.S. notes,etc.

. Budgeting should be an on-going affair. Estimates (for'ecasts) of receiptsand expenditures should be updated during the fiscal period to reflectchanging economic conditions, new programs, or phaseouts of oldprograms.

. Budget figures take on more meaning and are more comparable if taxesand expenditures are expressed in terms of per capita, per pupil, permile, per inmate, or per patient costs.

A suggested list of objectives for this topic follows. Teachers shouldselect those objectives most suitable for their classes. Students should

. know why it is important for them to study budgeting.

. know the meaning of the term budget.

. become familiar with actual individual, family, school, and governmentbudgets.

. know the meaning of such terms as surplus, deficit, "rainy-day" fund,fiscal period, etc.

. know what is meant by "rolling over" debts and why this practicegenerally should be discouraged.

. know that governments, as-well as other economic units, must deal withthe problem of scarcity (unlimited wants v. limited resources) andconsequently must select from among alternative wants those it deems*most important.

. gain an elementary understanding of the effect of government deficitsor surpluses on the economy as a whole.

realize the importance of living within a budget, once it is adopted.

. learn that good budgeting requires good recordkeeping so that financialreports can be prepared and used to evaluate the effectiveness of thebudgeting process.

be familiar with some of the ways in which governments, including schooldistricts, may invest short-term surplus funds to increase revenue(certificates of deposit, U.S. Treasury bills, etc.).

. realize that the public can influence the budgeting process throughdirect communication with public officials, the power of the vote, grouppressure, etc.

realize that there is a price tag attached to the services provided bygovernment. If the public demands new highways, new hospitals, morepolice and fire protection, expanded recreational activities, prisonreforms, etc., these services must be paid for through increased taxes.("You can't get something for nothing.")

know how to calculate and interpret per capita costs, per pupil costs,per patient costs, etc. (Many students enjoy using office machines toperform these calculations.)

. know how to compute percentages and use them for making quantitativecomparisons, such as total Federal expenditures to GNP, interest onFederal debt to GNP, year-to-year comparisons of budget items, etc.

SUGGESTED PUPIL ANDUNDERSTANDINGS TEACHER ACTIVITIES SOURCE

WHY SHOULD HIGH SCHOOLSTUDENTS STUDY BUDGETING?

. Intelligent financialplanning can help usacquire the goods andservices we want andneed.

. Budget income musteventually equal .out-go.

. Wise money manage-ment promotesharmony.

. Well-managed govern-ments, schools, andbusinesses operateon a budget.

. Easy credit may leadto overspending andfinancial disaster.

. Good budgetingrequires selectionfrom amongalternatives.

. Discuss:- Is itreally necessaryfor families to gothrough all the redtape of preparinga budget?

. Question:_ If a man'stake-home pay is$150 per week, canh.d spend $200?

Ask students if theyhave ever heard afamily argument overmoney. What was theissue? How could thesituation have beenresolved? Wouldbetter budgeting havehelped?

. Question: Whatmight happen if aschool districtoperated without abudget?

. "Sample Budget Break-down," The Knicker-bocker News, 1/10/73.(See clipping on thefollowing page.)

. Borrowing againstfuture earningsrequires carefulplanning to assurerepayment of the loan.

Family quarrelsfrequently result fromarguments aboutmoney or lack of it.

. Have students prepare .

a list of their wants.Ask them to assign apriority number toeach item. Then askthem to approximatethe.cost of the fivehighest priority itemsand determine whichthey could realisticallyafford.

10

There were almost200,000 personalbankruptcies in theUnited States in onerecent year.

business

UNION-STAR

-Finance

oneyTHE KNICKERBOCKER NEWS

Sample Budget Breakdown:Guide to Family Spend*

By LUCRETIA STEIGERCopley News Service

Nobody likes budgeting, butalmost everylbody does it.

Young families seem to fol-.

low one of two budgeting Sys-tems: the cash-in-envelope orthe checking account.

"I used to use the cash-in-envelope system,'." one youngmother said, "but it was tounhandy to have all thatmoney around the house. Ikept borrowing it."

TO ESTABLISH an individ-ual budget for your family,experts advise using the fol-lowing percentages as guide-lines. By keeping a careful re-cord of money spent for onemonth, then comparing therecord to the, percentages,areas of unusual spending,,can be discovered.

The percentages quotedwere developed by the Uni-versity of California's HellerCommittee for Social Re-search, which used .the Bu-

reau of Labor Statistics 1969study. "Three Budgets for anUrban Family of Four" as abase.

THE PERCENTAGES ap-ply to "take home" or actual-ly received funds.

Food: 23 per cent. Includesgroceries, dairy items, bever-ages and meals away from.home.

Housing: 23 per cent. In-clues mortgage payment orrent, utilities, insurance, tax-es, repairs and furnishings.

Clothing: 9 per cent. In-cludes purchases, laundry,cleaning, alterations.

Savings: 9 per cent. In-cludes savings accounts andinvestments.

TRANSPORTATION: 8:5per cent. Includes car expen-ses, insurance, fares, park-ing, licenses.

Personal allowances: 8.5per cent.

Medical: 7, per cent. In-cludes doctors, dentists,

drugs,, health insurance.Recreation and advance-

ment: 3.5 per cent. Includesschool, tuition, lessons, dues,vacation, recreation.

Gifts and contributions: 3.5per cent. Includes personalgifts, donations to churchesand charities.

Other expenses: 5 per cent.Includes life insurance ,andincome taxes not withheld.

From The Knickerbocker News - Union-Star, Wednesday, January. 10, 1973 14C

11

SUGGESTED PUPIL ANDUNDERSTANDINGS TEACHER ACTIVITIES

EXACTLY WHAT IS ABUDGET?

. A budget is an estimateof anticipated income(receipts) and outgo(expenditures) fora given future period.

WHAT IS A GOVERNMENTBUDGET?

. A government budget. isan estimate of how muchmoney a particularbranch of governmentintends to spend onvarious governmental'programs and how muchmoney it will receivefrom taxation andother sources ofrevenue.

WHY DO GOVERNMENTSPREPARE BUDGETS?

. Government budgetsassist officials tocontrol exPenditures,so as not to exceedincome.

Government budgets area means of communicatinginformation regardingthe financial affairsof government.

. Ask students toprepare a personalbudget for a 1-week period.

. Have students conferwith their parentsand prepare a familybudget for 1 month.

SOURCE

. DeCamp, Catherine C.,"The Money Tree,"Signet Book W 5129,New American Library,New York, Chapter II,1972

. Contact local govern-.bent and school dis-trict offices toobtain copies ofrecent budgets.

Ask students to giveexamples of variousgovernmental programs.

Budgets for the United .

States, New York State,and New York City areincluded in this pub-lication. Ask students to prepare wallcharts showing themajor items of incomeand expenditures.

. Encourage students todiscuss questions suchas:

- What benefit can acitizen receive fromattending budgetmeetings?

- If the governmentspends more moneythan it receives intaxes, how does itmake up the differ-ence?

12

Contact your Statesenator or assembly-man to obtain'a copyof the "Governor'sAnnual Budget Message "(a valuable referencefor this unit).

. A budget should letthe general publicknow how the govern-ment spends its moneyand where the moneyis coming from.

UNDERSTANDINGS

. The Federal budgetplays a positiVe rolein promoting economicstability.

SUGGESTED PUPIL ANDTEACHER ACTIVITIES SOURCE

(A process of short- .

or long-term borrow-ing or "rolling over"its bills is em-ployed.)

- If the Federal Gov-ernment spends $250billion and takes inonly -$225 billion, , .

whj, d6es this acttend to stimulateeconomic activity?(See below for adiscussion of fiscalpolicy.)

BACKGROUND MATERIAL FOR TEACHERS

Kimmell, Lewis H.,"Federal Budget andFiscal Policy," TheBrookings Institution,Washington, D.C., 1959.(See Introduction andChapter VII.)

Consult any recentlypublished elementaryeconomics textbook forexplanations of Key-nesian economics.

Budget deficits and the huge Federal debt are topics of great concernto the American public. Deficits and the consequent increase in theFederal debt sometimes result from poor fiscal management; but sometimesdeficits are created deliberately to stimulate the economy.

A simplified explanation of how deficits may increase economicactivity follows.

If the government spends $250 billion and takes in only $225 billion,it takes $25 billion less out of taxpayers' pockets in taxes than it putsback when it buys goods and services.

The $25 billion which the government "puts back" into the economy maystimulate economic activity, thus increasing consumption, production, andemployment. This fiscal device has been used effectively by the FederalGovernment to get the economy moving again.

However, if the economy is booming and the rate of inflation isincreasing, the government may spend less .than it receives in taxes, thuscreating a budget surplus. This tends to decrease the demand for goodsand services and may decrease employment, consumption, and production, aswell as the rate of inflation.

This application of Keynesian economic principles has become standardprocedure for many governments throughout the world. The purpose of allthis manipulation is to bring about greater stability in the level ofeconomic activity, i.e., to avoid "booms and busts" such as occurredduring the 1929-33 period of depression.

But this is only one of the tools used to promote economic stability.Other measures, such as monetary control, price and wage controls, andimproved economic forecasting also are used.

13

Stimulus ofU.S. BudgetMay Taper

By EDWIN L. DALE Jr.

WASHINGTONThe Fed-eral budget will provide mas-sive stimulus to the economyin the present nine-monthperiod from October to nextJuly, but the stimulus willthen decline rapidly.

This is the conclusion froma new, unpublishdd set offigures circulating within theGovernment. Their import-ance is that they break downthe Government's spendingand receipts on a quarterlybasis, which the regularlypublished documents do not.

The implications of thefigures are a -subject of de-bate here. The magnitude ofthe budgetary "swing" is al-most without precedent.

The new estimates mea-sure budgetary stimulus orrestraint on the "full em-ployment" basis of assess-ing the budget, which isgenerally regardedthoughit is somewhat controversialas a better measure ofbudget impact than the sim-ple budgetary surplus or defi-cit. In the "full employment"concept, receipts are esti-mated as they would be withthe.. national unemploymentrate at 4 per cent.

The unpublished figure'sshow that the "full employ-ment" deficit will reach apeak in the vicinity of $20-billion, annual rate, in thefirst quarter of 1973. Themassiveness of the swing tostimulus is shown in thefact that the "full employ-ment" budget was actuallyin surplus in the secondquarter of 1972.

This article appeared in theDecember 10, 1972,edition of The NewYork Times.

It is included here to provideteachers with an example of thepractical application of Keynesianeconomic principles, i.e., determininghow government fiscal policy affectsthe economy of the Nation.

This type of analysis is a jobfor professional economists. Butlayman should have a general under-standing of how government budgetingpractices may be used to counteractdestructive economic forces.

High school students shouldacquire at least a basic understandingof this subject.

It moved madly into deficitin the third quarter, is risingto a deficit in the-region of$10-billion in the currentfourth quarter, will soar fur-ther toward $20-billion in1973's first quarter and willremain high in' the $12-bil-lion area in the secondquarter. And thenassuminga fairly restrictive' Presiden-tial budget for the fiscalyear of 1974the deficitwill all but disappear in thelast two quarters of 1973.

In assessing this extra-ordinary swing in budgetaryimpact on the economy, offi-cials caution at the outsetthat the stimulus in the cur-rent nine-month period is notquite as great as the big de-ficit figures imply. There aretwo reasons for this:

Virst, the deficit is swol-len by $5-billion in revenue -sharing payments to thestates, much of which willnot be quickly spent and thuswill not have an impact ontotaldemand in the economy.Instead this money will tem-porarily increase an already..large state and local surplus,which will be a partial offsetto the Federal deficit.

4lSecond, the projected de-ficit for the first two quar-ters of next year also in-cludes about $5-billion in"excess" income-tax refundsnext spring stemming fromoverwithholding in 1972. Noone knows exactly what con-sumers will do with this © 1972 by The New York Timesmoney, but there is a general Company. Reprinted by permission."expectation that a good por-tion of it will be saved ratherthan spent.

14

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QUESTIONS FOR REVIEW AND DISCUSSION

Before proceeding with the study of actual government budgets, it maybe desirable to have students discuss some of the following questions.(See "Background Material For Teachers " on preceding page.)

1. What is a budget surplus?

2. What is a budget deficit?

3. What is meant by "rolling over" debts?

4. What tuidelines should be kept in mind when estimating future incomeand expenditures for budgeting purposes?

5. What factors may limit the services which a unit of government mayprovide?

6. Must budget income equal outgo?

(Generally, yes. But governments may (1) borrow, (2) "roll over"debts, (3) deliberately operate at a deficit or surplus.(See "fiscal policy," page 13.)

Why should citizens participate in government and school budget,hearings?

8. How can the "man in the street" make his opinions known to Federaland State legislators?

9. Should government and school financial records be audited?

(Division of Audit and Control - State, local, and school audits.Independent audits by certified public or public accountants)

10. School districts and other units of government frequently havelarge sums of cash available which will not be expended immediately.How should these funds be managed?

Problem: The Sun Valley School District invested $1 millionof its surplus cash in a 90-dav certificate of depositat 5 percent annual interest. How much money would theschool district earn in 90 days?

(Answer::. -$12,500.- Not bad. That may be enoughto pay one teacher's salary for afull year)."-'

17

11. Government and school budgets generally contain large dollar amountsthat are difficult to understand. How can these figures be made moremeaningful?

(Answer: If expressed as a budget item, break it down in termsof individual units.)

TERM

. per capita

. per student

. per mile

. per employee

. per homeowner

. per inmate

per patient

18

BUDGET ITEM

government taxes, expenditures,public debt, etc.

total cost of education

highway construction andmaintenance costs

wages for various occupations

police protection, fire protection,etc.

prison costs

hospital costs

GOVERNMENT BUDGETS:*

FEDERAL

NEW YORK STATENEW YORK CITY

* Test yourself guestions will befound following each budget

THE FEDERAL BUDGET

A breakdown of major sources of revenue and major categories ofexpenditures for the Federal Government for the fiscal year 1969-70 isgiven below,

Teaching-Learning Activities

1. Ask some students to prepare wall charts of Federal receipts andexpenditures.

2. After students have become familiar with the budget, distributecopies of the Test Yourself Questions pertaining to the Federalbudget which appear below.

3. When the students have found the answers to these questions,encourage discussions concerning questions such as:

Does the Federal Government spend an excessive amount ofmoney on national defense?(Relate to U.S. budget as well as to international armscompetition.)

Should the Federal Government operate at a deficit?

If social security benefits are increased, should thesocial security tax be increased? Or should the increasebe paid on the basis of total individual earnings?(The 1973 cutoff is $10,800; that is, earnings are taxedfor social security purposes up to $10,800. The 1974cutoff is $12,000).

Is the social security tax a progressive, proportional, orregressive tax?

Problem: Wage-earner Adams who earns $10,800 pays asocial security tax of $561.60. ($10,800 x .052)

Wage-earner Boyd who earns $108,000 pays $561.60.($10,800 [cutoff] x .052) What percentage ofAdam's wages are paid into social security?What percentage of Boyd's wages are paid intosocial security?

What is the amount of the Federal debt?

What is the per capita amount of the' Federal debt?

Notes: (1) Many economists are not particularly concerned with the amountof the Federal debt. Their concern is with the amount of debtcompared to the gross national product. Further consideration

is given to this topic following this section.

20

) The social security tax has been severely critized bysome writers and newsmen.

(3) Various opinions regarding some of the above questionsmay be expressed. The teacher should encourage avariety of viewpoints, but he should elicit orinterject factual information whenever this seemsappropriate.

"Monday and Tuesday I worked

for Uncle Sam. The rest of

the week is for me."

TUES. UNC LE SAM

M N. UNCLE SAM

WED. FOR METHUR. FOR ME

FRI. FOR ME

21

FEDERAL BUDGET*

July 1, 1969 to June 30, 1970

Where The Money Comes From

RECEIPTS ($193.8 Billion)

INCOME TAXES

(Corporate and Individual)

$123.2 Billion

63*

SOCIALINSURANCE

AND RETIREMENT

$45.3 Billion

23e

EXCISETAXES

$15.7Billion

8e

OTHER

$9.6Billion

6e

(*Number of cents of each dollar that comes from various sources)

"Death and taxes are inevitable."

22

FEDERAL EXPENDITURES

July 1, 1969 to June 30, 1970

(Number of cents of each dollarexpended for various programs)

Interest $14.3 Billion 7t

Health $15.8 Billion 8t

Space Research and Technology $3.7 Billion 2t

Agriculture $6.5 Billion 3t

Income Security $40.7 Billion 21t

International Affairs $3.5 Billion 2t

Community Development and Housing $3.1 Billion 2t

National Defense $80.3 Billion 41t

Natural Resources $2.5 Billion (net) It

Education and Manpower $7.4 Billion 4t

Veterans $8.7 Billion 4t

Commerce and Transportation $9.3 Billion 5t

General Government $3.4 Billion 2t

Total Expenditures = $196.8 Billion

Notes: (1) The figures add to more than total outlays because theyinclude certain transactions which are entirely within theGovernment and are thus deducted prior to arriving at thetotal.

(2) Detail may not add to totals due to rounding.

23

FEDERAL BUDGET

Fiscal Year 1970Deficits Receipts, and Expenditures

fiscal.year 1970 budget

In fiscal year 1970, (which began on July1, 1969 and ended June 30, 1970), Federaloutlays were $196.8 billion, and receiptstotaled $193.8 billion, leaving a deficit ofalmost $3 billion.

ReceiptsReceipts come mainly from individual

and corporate income taxes$123.2 bil-lion, or almost 2/3 of the total in fiscal year1970. Social insurance and retirement taxestotaled $45.3 billion and excise taxes $15.7billion. The Government's other revenuescame from a variety of sources.

The Government's revenues are used forproviding a wide range of public services.Outlays for domestic programs to meet theneeds of our growing population and urgentsocial problems were given high priority inthe 1970 budget, while other programswere held down insofar as possible.

Expenditures

National Defense: $80.3 Billion. 41 centsof each dollar spent by the Governmentin 1970 went for maintaining our na-tional security, for military assistanceabroad, and for atomic energy programs.

International Affairs: $3.5 Billion. 2 centsof each dollar went for international pro-grams, such as economic and technicalassistance, Food for Peace, the opera-tion of embassies and information ac-tivities abroad, and the Peace Corps.

Space Research and Technology: $3.7Billion. Manned space flight, space sci-ence, and technological and supportingactivities, took about 2 cents of eachGovernment dollar in 1970.

Agricuitur6: $6.5 Billion. 3 cents of eachdollar spent were used for the stabiliza-tion of farm income, financing ruralelectrification and housing, soil conser-vation, research, and food inspection.

Natural Resources: $2.5 Billion. Grossspending for water pollution abatement,management and protection of the na-tional parks and forests, flood control,power projects and related programs was -$3.6 Billion. After deducting receipts of$1.1 billion for activities such as leasingof mineral rights and timber sales, netspending for natural 'resource projects in1970 was $2.5 billion or 1 cent of thebudget dollar.

24

Deficit, Receipts, and Expenditures (Contld.)

Cormurcq, and Transportation: $9.3Billion

A.r cents of the 1970 Government

dollar went for specially -financed high-way construction; operation of the Fed-eral airways, the Post Office, and theCoast Guard; aids to economically distressed areas and small business; andfor related programs.

Community Development and Housing:$3.1 Billion. The Federal Governmenthelps provide loans and grants fJr publichousing, urban renewal, model citiesplanning, parks, water and sewer facilities, and neighborhood facilities. It alsoaids private housing through support ofthe mortgage market and rent supple-ments. These programs took 2 cents ofthe Government dollar.

Education and Manpower: $7.4 Billion.Programs to improve the quality of education at all levels, to assist science.education and basic research, vocationaleducation, and manpower training, took4 cents of each dollar of the Federalbudget. Special emphasis is being placedon improving the education of disadvan-taged children and in training the hardcore unemployed.

Health: $15.8 Billion. Through Medicareand Medicaid the Government helps paythe medical bills of the Nation's agedand poor. In addition, the governmentprovides funds for medical research,training health manpower, constructionof health facilities, and the preventionand control of health problems. Theseprograms took 8 cents of the Govern-ment dollar in 1970.

Income Security: $40.7 Billion. This cate-gory includes social security, unemploy-ment and retirement benefits which arefinanced by taxes specifically levied forthese programs. It also includes publicassistance grants, food and nutritionprograms and vocational rehabilitation.These programs accounted for 21 centsof each Government dollar in 1970.

Veterani: $8.7 Billion. Pensions - andcompensation, hospital care and medicaltreatment, education and training of vet-erans, life insurance benefits, and otherveterans programs took about 4 centsof the Government dollar.

Interest $14.3 Billion. Interest paymentson the debt held by the public requiredabout 7 cents of each Government dollarin 1970.

General Government: $3.4 Billion. About2 cents of each dollar went for strength-ening efforts to control crime, makingand enforcing our laws, managing Gov-ernment finances and property, andother general activities.

"The marvel of all history is the patience with which

men and women submit to burdens unnecessarily

laid upon them by their government."Borah

25 .

TEST YOURSELF ON THE 1969-70 FEDERAL BUDGET

Try to find the answers to the following questions:

1. From what source does the Federal Government receive most of itsfunds? Answer

2. For what purpose did the Federal Government spend most of itsincome? Answer

3. Was there a budget surplus or a budget deficit for this period?Answer . About how much? $

4. Were expenditures for social insurance greater or less thanreceipts? Answer . About how much? $

5. Approximately how much did the Federal Government spend forinterest on the Federal Government debt during this period?Answer $

6. The Federal Government spent almost $16 billion for healthprograms. List some of the benefits the public received fromthese expenditures.

7. About how much did the space program cost the Federal Governmentfor the 1970 fiscal year? Answer $

8. The Federal Government obtains income from excise taxes. What isan excise tax? Give some examples of commodities subject toexcise taxes.

9. Approximately how much did the Federal Government spend per capitain 1969-70? Answer $(To get a rough estimate, assume that the total U.S. populationis 200 million people and that expenditures were $200 billion.)

10. About how many cents out of each dollar of expenditures did theFederal. Government use for education and manpower?Answer $ How does this compare with expenditures fornational defense?

26

UNDERSTANDINGS

IS THE FEDERAL DEBTTOO BIG?

. Some economists say"No" not if measuredin terms of GNP.

. GNP (gross nationalproduct) is the totalvalue of goods andservices produced bythe economic system ofa country.

. However, economistsalso point out that

. excessive publicspending, when theeconomy is goingfull blast, increasesinflationary pressures,(i.e., sharp increasesin prices, interestrates, wages, etc.)This may cause re-cessions and dis-courage private in-vestment.

. One of the biggestdangers of excessivegovernment spending andincreases in publicdebt is that it createsan inflationary psychology. In its extremeform, such as inGermany after WorldWar. I, runaway in-flation results.

SUGGESTED PUPIL ANDTEACHER ACTIVITIES

Ask a few studentsto prepare wall chartsshowing (1) the in-crease in the Federaldebt from 1960 to1972 and (2) the in-crease in the amountof interest on theU.S. public debt.

. Have students approxi-mate the percentage ofthe total U.S. public

SOURCE

. U.S. News and WorldReport, January 24,1972

. Samuelson, Paul A.,"Economics," 8thedition, pp. 336-350

. Reynolds, Lloyd G.,"Economics," revisededition, 1966, pp.620-624

debt to GNP. . U.S. Department ofU.S. Public Debt i Commerce, "BusinessGNP = Conditions Digest,"$ 450 billion

= 40.9 October 1972, U.S.$1,100 billion

percent Government PrintingOffice, Washington,

Make copies of theD.C. 20402 (GNP

chart on the follow-data)

ing page. Ask studentsto interpret national

Macaulay, Thomas,"

debt and interest onThey saw that the

the national debt indebt grew; and they

terms of GNP.forgot that otherthings grew as well."

. Public debt should bearsome reasonable rela-tionship to GNP. An

increase in publicdebt at approximatelythe same rate as therate of increase inGNP is not consideredexcessive.

"The power to tax is the power to destroy."Marshall

27

PUBLIC FEDERAL DEBT COMPARED TO GNP*

(A)

Year

(B)

PublicFederalDebt

(C)

GNP

(D)

Public FederalGNP Debt(B i C)

1929(billions)$ 16.3

(billions)$ 86.8 20 percent

1945 278.7 181.5 150 percent

1970 360 815.0 42 percent

TEACHING GUIDE

One way to assist students to understand the above table is to inter-pret Column D as follows: In 1929, the U.S. Government owed bondholderstwenty cents for each dollar of goods and services produced by the U.S.economy (GNP). In 1945, after W.W. II, the U.S. Government owed one dollarand fifty cents, etc....

United States bonds are considered the safest investment because theyare backed by the dynamic growth of the U.S. economy. As bonded indebted-ness becomes due for payment, new bonds are issued. This process can go onindefinitely as long as the economy is sound. The amount of the debt is notas important as the size of the debt compared to the value of goods andservices produced by the economy (GNP).

INTEREST ON PUBLIC FEDERAL DEBT COMPARED TO GNP*(A)

Year

(B)

Interest onPublic Federal

Debt

(C)

GNP

.(D)

Interest .1. GNP

(B i C)

1929

(billions)

$ .66

(billions)

$ 86.8$ 660 million

8 Percent$ 86.8 billion

1945 3.66 181.5

$ 3.66 billion2.0 percent

$181.5 billion

1970 16.5 815.0$ 16.5 billion

2.0 percent$815.0 billion

1973 21.0 (est.) 1,100.0 (est.)$ 21.0 billion

1.9 percent11,100 billion

* "Adapted from 'Economics,' 8th edition, by Samuelson, Paul A., 1970,McGraw-Hill, New York. Used with permission of McGraw-Hill BookCompany."

28


IS THE INTEREST ON THENATIONAL DEBT BURDENSOMETO THE TAXPAYER?

. Most of the interestpaid simply transfersmoney from one groupof U.S. taxpayers toanother (exceptinterest paid toforeign holdersof U.S. governmentsecurities).

. Since most U.S. bondsare owned by banks,insurance companies,large corporations, andwealthy individuals, aredistribution of in-come from less affluentto more affluentcitizens occurs whenbond interest is*paid.

Ask students tocalculate the per-centage of intereston the public debtto (1) GNP and(2) to total Federalexpenditures basedon the following"rounded" figures:(1) Interest on

Federal debtGNP

$ 21 billion$1,100 billion 1'9

percent

(2) Interest onFederal debtTotal FederalGovernmentexpenditure =

$ 21 billion8.4

$250 billionpercent

SOURCE

. "The MacLeish Memoran-dum on the NationalDebt," The WashingtonMonthly, May 1972, 1150Connecticut Avenue,Washington, D.C.20036

. The $21 billion in-terest on the nationaldebt is the thirdlargest item in ourFederal budget. Na-

tional defense ex-penditures are first,and social security issecond.

(Note: Current GNPfigures may be obtainedfrom the U.S. Depart-ment of Commerce pub-lication, BusinessConditions Digest.The current amountsof Federal pu.blic debtand Federal expendi-tures are given in theFederal ReserveBulletin.)

29

"The payment of in-terest on the nationaldebt diverts fundsfrom more pressingpublic needs, such astax relief, revenuesharing, and pollutioncontrol, but it alsoplaces a special burdenon the country'saverage and poorcitizens."Federal ReserveBulletin, Board ofgovernors, The FederalReserve System,Washington, D.C.20551

STATE OF NEW YORK

ANNUALBUDGET

MIL

c3

30

The 1973-74 New YorkState Budget andFinancial Plan

LOCALHROLIA6c0,4_EGES

si4 kinieft

Ouc,a1n9

4,11,44:

PtItAttP

31

1973-74 ESTIMATED NEW YORK STATE INCOME

General Fund

(millions of dollars)

Personal income tax

User taxes and fees

Sales and use taxMotor fuel taxCigarette taxMotor vehicle feesAlcoholic beverage taxAlcoholic beverage control licensesHighway use tax

Business taxes

Corporation franchise taxCorporation and utilities taxesInsurance taxesBank taxUnincorporated busine3s tax

Revenue fromfrom other activities

Pari-mutuel taxEstate and gift taxesLotteryReal estate transfer taxOther taxes

Miscellaneous receipts

Total revenue

1973-74Estimated

3,380.0

3,182.9

1,875.0494.0328.0250.0167.033.435.5

1,436.9

775.0281.9174.0127.079.0

396.7

154.0.178.053.58.03.2-

141.5

8,538.0

Additional income

amounting to $220million fromFederal aid and

$123 million frombonds will bringtotal receipts to$8,881 millionwhich equalsestimated ex-penditures.

TEST YOURSELF ON THE 1973-74 NEW YORK STATE BUDGET

Using the budget information presented above, and other references, tryto answer the following questions:

1. What is the second largest source of income used to carry outgovernment programs of the State of New York? Answer. taxes.

2. May the Legislature increase the budget proposed by the Governor?Answer

3. About how much is included in the budget for State aid to localschools and colleges? Answer $

32

4. What is the total amount of money which New York State collectsfrom the lottery? Answer $

5. Lottery receipts are used to finance education. 'What percentageof the cost of State aid to local schbols and colleges is obtainedfrom the lottery? Answer percent (Use round numbers)

6. For what purpose is most of New York 'State's tax dollar spent?Answer

7. What is meant by the term "debt service "? Answer

8. How much money has the Governor included in his 1973-74 proposedbudget for environmental conservation and recreation?Answer $

9. What is the estimated amount that will be received from motorvehicle fees? Answer $

10. What percentage of the total estimated budget of $8,881 million willbe derived from business taxes? Answer percent

11. If the Governor's 1973-74 proposed budget is passed by the legisla-ture as presented (not likely), approximately how much will thisamount to for every man, woman,and child who lives in New YorkState? Answer $ per capita. (Use round numbers.)

THE 1973-74 BUDGET AND FINANCIAL PLAN

NEW YORK STATE BUDGET(millions of dollars)

1972-73 Estimated Cl .ngefrom Current

1972-73Estimate

Mid-yearReview

CurrentEstimate

1973-74Recommended

IncomeCurrent Revenue 7,406* 7,481* 8,538 +1,057**Federal Aid 450 442 220 222Bond Funds 104 100 123 +23

Total Income 7,960 8,023 8,881 +858

Repayment of Tax Stabilization Re-serve Fund 66 66 +66

Total Usable Income 7,S94 7,957 8,881 +924

ExpendituresState Aid

Local Assistance Fund (4,728) (4,805) (5,323) (+518)Capital Construction Fund (72) (112) (+40)

Total State Aid 4,806 4,877 5,435 +558

Direct State OperationsState Purposes (2,535) (2,54S) (2,829) (+281)Capital Construction (343) (318) (377) (+59)Debt Service (210) (2D5) (240) (+35)

Total Direct State Operations 3,088 3,071 3,446 +375

Total Expenditures 7,894 7,948 8,881 +933

Excess of Income over Expenditures. 9

*After redemption of $440 million in tax anticipation notes issued to partially finance 1971-72 deficit.** Reflects growth of $617 million and nonrecurrence of $440 million special outlay.

33

p--.9ifr4ttmitopp

oc0

'WI

,

-DOLLARS PER CAPITA

NEW YOR

ALASKA-

:MINNESOTA:

CALIFORNIA;

WISCONSIN

1101-TOM 5,STATES

n` yM'MAINE;

"MISSoURr

OTH.DAIeOTAt4/-ft-tWHAMOI1IfiE4

I1.

UNDERSTANDINGS

WHAT IS STATE REVENUESHARING?

. State revenue sharingmeans that the statedistributes money(state aid) to localgovernments andschools which itreceives from statetaxes.

. The purpose of stateaid is to help localgovernments pay partof the cost of govern-ment and to helpschools, pay part ofthe costs of educa-tion.


Reproduce New YorkState's 1973-74 Budgetand Financial Plan anddistribute to students.Have students find(1) total amount ofState aid and (2) thepercentage of Stateaid to total expendi-tures.

. Obtain copies of localschool budgets. Askstudents to find outhow much their schooldistrict received inState aid. Also, what

percentage of total

school expenditures waspaid by (1) the Stateand (2) the localcommunity.

34

SOURCE

. State of New York,"Annual Budget Message1973-74," p. M4

. See preceding page for1973-74 New York StateBudget and FinancialPlan to find totalState aid (under"expenditures").

Local Taxes Per Capita, by States

1970

167

204

252

167

240

166

90

133

261

93

D. C. 516

High -- New York

$317

Median

$167

Average

$191

Low -- S

C.

$ 64

r--1Less than $100

E*1$100

- $159

$160 - $209

W$210 and mere

Source

Lutz, Edward A. and Plimpton, Lois, "Summary Statistical

Comparisons of-State and Local Taxes Among States of

the United States 1960-1970, 12/1971, No.49, Department

of Agricultural Economics, Cornell University, Ithaca, N. Y.

Per Cent Increase inLocal Taxes Per Capita, by

States

1960 to 1970

-- 87

81 73

100

77

r- 192

132

D. C. 130

High -- Alaska

217

Median

87 91

48

Average

Low -- Idaho

Source

MUTEdward A. and Plimpton, Lois, "Summary Statistical

Comparisons of State and Local Taxes Among

States of

the United 'states 1960-1970, 12/1971, No. 49, Department

of Agricultural Economics, Cornell University, Ithaca, N.Y.

PROPOSED BUDGET

CITY OF NEW YORK1972 -73

37

MAYOR LINDSAY'S 1972-73 BUDGET PROPOSAL

Mayor Proposes a Budget of $1 0-BillionSOURCES OF BUDGET DOLLAR

taleAld19%

Federal Aid Pending State18% Legislature's Action

on the Big Six Programand Federal RevenueSharing 8%

Aeat EstatePending CitirCouncil Action 1%

TUterf , All Other 2%25%r,

Gonerat kmdfiewenbtel

HOW THE BUDGET DOLLAR IS SPENTFire 3%Environmental Protection 3%Higher Education 4%

Miscellaneous(Soler Security. Pensions. Etc.) 7%-

HumanMotleys

Mettleattion23%Health and Hospitals 9% 1

,,

\Administration of Justice 9%--

__,.,....,,.......--, ,

E89C0111X1 21%iDebt

Seryite10% AilOthet

11%

The New York Times/March 1 1972

"01972 by The New York Times Company. F. ,nted by permission."

38

NEW YORK CITY BUDGET PROPOSAL 1972-73

Proposed Budget AppippriationsFollowing is a summary of appropriations for agencies

and other services in the city as listed in the expense bud-get Mayor Lindsay submitted to the City Council and theBoard of Estimate, with figures in millions of dollars:

71-72 Modfied '7243 Executive %Agency: or Category. Budget Budget Change

Human ResourcesAdministration $2,157.7 $2,474.5 15

Education 1,940.5 2,163.1 - 11Health Services 862.1 924,2 7Police 652.4 720.3 10Charitable institutions 388.1 425.3 10City University 382.3 411.0 8Environmental Protection 306.7 348.7 14Fire 300.5 335.8 12

Courts 115.3 123.8 7Municipal services 93.7 105.3 12Transportation 89.4 96.9 8Parks, Recreation and

Cultural Affairs 77.3 84.9 10Addiction services 64.4 49.0 (-) 24Housing and Development 70.6 68.2 (-) 3Correction 64.4 81.2 26Libraries 45.7 48.0 5

/Finince 35.8 36.0 IEconomic Development 9.1 9.2 IAll other agencies 208.7 189.2 (--) 9Debt service 693.1 1,023.1 48Miscellaneous 553.5 707.4 28

436.7

Total budget-all funds $9,111.3 $10,425.1 14

Less: capital budget and specialfunds including services rend-ered to independent agenciessuch as the Housing Authori-ty, Transit Authority, etc $ 452.1 $

Total Expense Budget $8,659.2 $ 9,988.4 15

Agency appropriations do not Include fringe benefits, Pensions, or debt serviceexcept that (I) separate pension systems are included in the appropriate agencytotals and (2) debt service Is included In the education and health services budgets.

TEST YOURSELF ON THE 1972-73 NEW YORK CITY BUDGET

Using the budget information presented above and other references, tryto answer the following questions:

1. Which branch of government spends more money, the State of NewYork or the City of New York? Answer

2. The proposed 1972-73 budget for the City of New York called forexpenditures of approximately $10 billion. (a) What percentage ofthis estimated amount would be supplied from sources outside the

city? (b) How many dollars would be collected from outsidesources?Answers fa) percent (b) $

39

3. Do local governments located in New York State outside-of New YorkCity receive Federal and State aid? Answer

4. Twenty-three 'cents out of each New York City budget dollar is spentfor human resources administration. (a) What is included underthis heading? (b) Of a $10 billion budget, how many dollars willbe appropriated for this budget item? Answers (a)

(b) $

5. What is included under the budget heading. called "debt service"?Answer

6. The proposed New York City budget of $10 billion included 10percent for debt service. How many dollars will be requiredfor payment of interest on the New York. City debt and/or repaymentof principal on New York City bonds? Answer $

7. How much money does New York City appropriate for higher education?Answer $

8. What is the approximate per capita cost of city government for NewYork City residents? Answer $

9. If, on the average, a household consists of four persons, what isthe cost of New York City government per household?Answer $


WHAT IS FEDERAL REVENUESHARING?

. The Federal Governmentdistributes money whichit receives from Federaltaxes and the sale ofgovernment bonds tostate and local govern-ments:

. The purpose of Federalrevenue sharing isto help pay part of thecosts of state andlocal government.

. Ask students to findout how much moneyNew York Stateestimated it wouldreceive from Federalrevenue sharing for1972-73 and how muchit anticipatesreceiving for1973-74.

Why was New YorkState's anticipatedshare of Federalrevenue cut over$200 million for the1973-74 fiscal year?

. What percentage oftotal expenditurescontained in the NewYork State budgetproposed by GovernorRockefeller will be

40

. State of New York,"Annual Budget Message1973-74," pp. M7-8.(Contact your Stateassemblyman or senatorfor a copy.)

. "Revised RevenueSharing Formula, ". The

Wall Street Journal,December 11, 1972,p. 13

"The United StatesTreasury mailed outmore than,$2.6 billionin checks to about38,000 state andlocal governments, withsome money held backfor local units ofgovernments still to befound. The checks


DOES THE FEDERAL GOVERN-MENT HAVE SURPLUSFUNDS TO SHARE WITH STATEAND LOCAL GOVERNMENTS?

. Not at present.Federal revenue sharingincreases Federaldebt.

. The Federal Governmentfrequently operates ata deficit.

. When the Federal Govern-ment operates at adeficit, it sells bondsto get the money to payits bills.

. Selling bonds increasesthe Federal debt.

derived from antici-pated Federal revenuesharing for the1973-74 fiscalperiod?

. Reproduce the graph"The Government'sWorsening BudgetPicture." Distributeto students. Askstudents: Wherewill the governme.rA.get the money to oayits bills if itspends more than itreceives in taxes?(U.S. Treasury mustsell bonds.) Howwill this affect theFederal debt?

41

SOURCE

mailed were paymentsfor the first half ofcalendar 1972.Identical payments forthe second half of1972 will be sent tothe states and locali-ties in January. Therevenue-sharing programhas a five-yearauthorization fromCongress."The Wall StreetJournal, December 11,1972

. U.S. News and WorldReport, "Drive to CutRed Ink in the '73Budget," August 21,1972

If the Federal Govern-ment is currentlyoperating at a deficit,it must borrow themoney (sell bonds) tofinance Federal revenuesharing programs.

The Federal debt nowamounts to about $450billion.

THE GOVERNMENT'S WORSENING BUDGET PICTUREEstimates for the year that started July 1

Last January(official)

June 5 Latest(official) (unofficial)

REVENUES $220.8 bil. $223.0 bil. $221.0 bil.

OUTLAYS -$246.3 bil. $250.0 bil. $256.0 bil.

DEFICIT

$27.0

bil.Source: Januaryestimate, Office ofManagement andBudget; latest esti-mate, USN&WREconomic Unit

DEFICIT

$35.0

bil.

"Reprinted from 'U. S. News & World Report'.Copyright 1972 U. S. News & World Report, Inc."

UNDERSTANDINGS

ARE THERE LIMITS TOGOVERNMENT SPENDING?

. Yes.

If government spendingexceeds income, it mustborrow money to make upthe difference (issuebonds, notes, etc.).

. If a government can'tpay the interest orprincipal on its bondsor notes, investors mayrefuse to buy .any more.Then, spending must becut or taxes must beincreased.

. Government spending islimited to the amount ofmoney the government canraise from taxes and/orby how much it canborrow.


. Question: Are in-.dividuals limited inthe amount they canspend? (Can't spendbeyond their income,their borrowingcapacity, or theamount of money theyreceive in gifts.)

. Problem: A townsupervisor proposes abudget which listsanticipated expen-ditures for the coming . The Federal Governmentyear of $250,000. sometimes deliberately.Estimated income from spends more than itall sources is $240,000. receives in taxes orWhat alternatives are cuts taxes to stimulateavailable to the town economic activity.board? (Answer: Cutexpenditures by $10,000;

New spending proposals submit.

ted in recent months by theWhite House plus action by

Congress are pushing up fed-

eral outlays faster than expected.

Result: More red inkand grow-ing alarm over the danger ofrekindled inflation.

SOURCE

. There are limits ongovernment spending justas there are limits onthe amount an individualcan spend.

. School districts havebeen forced to closeschools because theydid not have enough cashto pay teachers'salaries, operatingexpenses, etc.

42


appropriate $10,000from surplus if

available; or, insome instances, itmay issue short-termnotes or bonds tomake up thedifference.)

NATIONAL DEBTBUMPING AGAINSTTHE CEILING AGAIN

Or, if the economy isoverheated, it maydecrease spending orincrease taxes.

Write to CitizensPublic ExpenditureSurvey, 100 StateStreet, Albany, N.Y.12207, for a copy ofthe booklet entitled"Organization of Localand County TaxpayerGroups."

A "CEILING" THAT KEEPS RISINGThree decades ago, in 1941, Congress set out to

control federal spending by imposing an over-all

limit on the national debt. The first ceiling was

aimed Franklin D. Roosevelt, freespending Dent-

cratic President. In the 31 years since then, through

Republican and Democratic Administrations alike,

federal spending has soared more than 1,500 per

cent. Debt has jumped almost 800 per cent. Con-

gress raised its debt ceiling 23 times sometimes

more than once in a year and lowered it on 5occasions. Now another increase is predicted.

Legal Limit, on Debt

$295 BIL.

$286.1 BIL.

As ofJune 30 1960 '61 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 1972

$433 BIL.

/$430 BIL.

$400 BIL.

Amount of Debt

$350 BIL.

$300 BIL

Source: U.S. Treasury; projectiop of debt to June 30, 1972. by USN&WR Economic Unit

Cont'd."Reprinted from 'U. S. News & World Report'.Copyright 1972 U. S. News & World Report, Inc."

43

DEBT'S BURDEN ON TAXPAYERSMORE THAN DOUBLED IN THE '60s

$21.5 BIL.

$9.2 BIL.

Year endingJune 30 1960 '61 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 1972

Interest on U.S.Public Debt

I I I I III II I 1

Source: U.S. Treasury; projection to June 30, 1972, by USN&WR Economic Unit

"Reprinted from 'U. S. News & World Report'.Copyright 1972 U. S. News & World Report, Inc."

\Pr4j r

"The art of taxation consists of so plucking the goose as

to obtain the largest amount of feathers with the least

possible hissing"

44

TAXES

TYPES

USES

CHARACTERISTICS

Taxes types, uses, characteristics

A wide variety of taxes are used to pay for the costs of governmentand education.

Students may wonder why we have so many different types of taxes. Atleast two reasons may be given: (1) it is easier to collect smalleramounts of taxes on a variety of tax bases than to collect one large amountof tax on a single base, and (2) taxes were developed historically torecognize or take advantage of certain conditions. Property taxes wereused extensively during the early history of the United States becauseproperty ownership was considered a good measure of wealth (ability to pay).Later income taxes were introduced because it was thought that people whoearn more should pay more. User taxes, such as sales taxes, cigarettetaxes, and gasoline taxes, are thought to be justified because they are adirect charge on the one who consumes these products (sometimes called a"sin" tax) and because they are easy to collect.

THE BIG DEBATE

Tax Reform

Demands for tax reform again are in the air. The rich may feel thatprogressive income taxes kill incentives. This may very well be true. Poorand average income groups and some tax authorities are against regressivesales and user taxes. Some legislators have attacked the special taxallowances provided in the Internal Revenue Code and other tax laws thatfavor homeowners, oil producers, manufacturers, etc.

All of these groups may have legitimate complaints. But, no one hasyet been able to devise a tax system that will satisfy everyone.

The most we can hope for is that citizens will gain an understandingof the impact of various types of taxes. It is then up to them to get theirrepresentatives in government to develop what they believe to be equitableand effective tax systems.

"Of all debts, men are least willing to pay taxes;

they think they get their money's worth, except

for these." Emerson

n r

TAXES: Paid by Residents of New York State

Type of Tax

Level of Governmentor

Programs Characteristics *.-o- -0-

User taxes:Sales and use State; local; education RegressiveMotor fuel Federal; state RegressiveCigarettes Federal; state; city RegressiveMotor vehicle fees State RegressiveAlcoholic beverages. Federal; state RegressiveAlcoholic beveragelicense State Regressive

Highway use. Federal; state Proportional/intermediate

Personal Income Federal, state, city ProgressiveCorporation Income Federal, state, city Proportional

Value-added (VAT) Not used by Federal or(form of sales tax) New York State governments Regressive

Real Property (Real Local; education Somewhat regressiveEstate)

Social Security Federal

as imposed.Regressive. But thisis modified due toamounts paid out to

-beneficiaries of theprogram.

(Revenues from other activities include the parimutuel tax, estate and gifttaxes, the lottery, real estate transfer tax, and miscellaneous receipts.)

*Tax Characteristics Explained

1. Regressive tax: a tax that takes a smaller percentage of income fromhigher income earners than lower income earners.

2. Progressive tax: a tax that takes a higher percentage of income fromhigher income earners than lower income earners.

3. -Proportional (intermediate) tax: a tax that takes the same percentageof income from all taxpayers.

47

NEWS ITEMS

U.S. NEWS & WORLD REPORT, January 24, 1972.

"While the public debt has shot upward at a spectacular rate in recentyears, it actually is not at any record level in relation to the country'sannual output of goods and services, or gross tional product.

"Back in 1954, for example, the debt was equal to about 75 percent ofGNP. By 1970, it had dropped to less than 39 percent.

"This year, the pile of government liabilities is growing to about 39.5percent of national output. It is not expected to exceed that in the yearstarting July 1 (1973).

"The interest cost of the debt, however, is up somewhat in relation tototal goods and services. At about 1.7 percent of GNP in the years before1969, interest on the debt rose to 2 percent in 1970 and 2.1 percent in 1971.

"Outlook this year is for a slight drop, back to 2 percent of GNP."

Excerpts from a Time magazine article, "Is The U.S. Going Broke?", March13, 1972:

"The budget squeeze will probably become even worse later in the 1970s.Lawrence S. Ritter, professor of finance at New York University, calculatesthat-during the rest of the decade, public spending will have to average$46 billion a year above 1970 levels for just four purposes: rebuildingmass-transit systems, cleaning up pollution, upgrading law enforcement andimproving education.

"Though almost every American feels oppressed by taxes, the U.S. is infact one of the most lightly taxed of all the industrial nations. TotalU.S. tax collections equal only 31% of the country's gross national productv. 33% in Germany, 37% in Canada, 41% in. Sweden and 43% in Britain. By' no

coincidence, most of these nations enjoy higher-quality health care, rec-reational facilities, mass transit and many other services than the U.S.does."

"Reprinted by permission from TIME, The Weekly Newsmagazine; Copyright TimeInc."

48

BACKGROUND MATERIAL

$1,000,000,000,000a question of time

Government expenditures aregrowing so rapidly that theymight reach a trillion dollars by1982, says Jack S. Parker, vicechairman of the board andexecutive officer of the GeneralElectric Company.

Writing in the July issue of theTax Foundation's monthlynewsletter, Tax Review, Parkerstated that unless such spendingcan be brought under control,"we can expect increasinglyserious periods of recession,unemployment, inflation,economic controls, and finallysocial upheavals that will makeour present situation seem like aGolden Age."

Mr. Parker sees the solution ofthese problems in makinggovernment services more ef-ficient and productive and ac-celerating economic growth.

Parker forecast that ten yearsfrom now total. governmentexpenditures will rise to $912billion largely on the basis ofpresently built-in obligationsand,represent 37 per cent of a$215 trillion gross nationalproduct. Some elements of theeconomy, notably defense, hesaid, will grow more slowly thanothers but the expectation is forgovernment spending to grow atthe rate of 9.4 per cent a yearcompunded. "This is considereda relatively- conservativeforecast," he said.

Question Is: When?If the nation moves farther

GE'sJack

S.

Parker

along with national health in-surance, guaranteed income,and revenue sharing programs,the GE executive said, govern-ment expenditures in 1982 couldreach the trillion dollar figure,or 41 per cent of the grossnational- product, "Apparentlythe only question is whethergovernment spending will reachthe trillion dollar mark by 1982or 1984."

Parker also noted that the taxburden is growing much fasterthan the economy that supportsit; and that at the current rate ofincrease, total governmentexpenditures could total half thenation's total output well beforethe century is out.

"If we are really going to turnthe situation around," Parkersaid, "and keep the governmentsector from overwhelming theprivate sector, perhaps the mostimportant step,is that we utilizeall parts of our economy, in-'chiding private enterprise, toprovide needed communityservices."

This article appearedin the September-October 1972 issue ofthe New York StateTaxpayer.

Suggested Procedure for Using This Article1. Distribute a copy of this article to each student.2. Ask students to writelthe number used in the headline in words.3. To give students some conception of a trillion dollars, ask them

questions such as, "How many $5,000 cars will 1 trillion dollarsbuy?

4. What does Mr. Parker predict will happen if the amount of governmentspending continues to increase?

5. What solutions does he offer to decrease government spending?

49

SALES AND USE TAXES

50

BACKGROUND INFORMATION FOR TEACHERS

Sales and Use Taxes

Almost all consumers pay sales or use taxes in New York State. Butrelatively few people realize how much of their annual income is spent onthese taxes. The sales tax on small purchases seems inconsequential. How-ever, when added up at the end of the year, the total tax paid issubstantial.

For example, look at the chart below and see what the sales taxescould amount to for a newly married couple during their first year ofmarriage (husband and'wife both working).

Hypothetical Case

ITEM PURCHASEDRETAIL PRICE(Tax Excluded) Sales Tax*

Footwear (husband) $ 40.00 $ 2.80Footwear (wife) 50.00 3.50Record player 70.00 4.90Clothing (husband) 80.00 5.60Clothing (wife) 200.00 14.00Refrigerator 300.00 21.00Color TV 360.00 25.20Living room suite 500.00 35.00Snowmobile 1,000.00 70.00Car 2,400.00 168.00Misc. small purchases 900.00 63.00

Total $413.00

*Assuming a 7 percent sales tax

Knowledgeable consumers should be aware of the yearly cost of this taxas well as other taxes which they are paying.

Incidentally, the above illustration .can be used to introduce thetopic of sales taxes to the class. A copy of this chart with the salestax omitted can be given to each student. Let the students calculate thetax on each item and find the total sales tax. Then have them calculatethe percentage of total annual income spent for sales taxes. Several incomelevels should be used. For example:

ANNUAL INCOME

(A) $ 8.260.00(B) 16,520.00

SALES TAX

$413.00413.00

PERCENT OF TOTAL INCOME

5 percent2% percent

NOTE: The above hypothetical case illustrates the regressive characteristicof sales taxes. B's income is twice as much as A's. But, A's taxrate is twice as much as B's. (See page 53 for a further discussionof regressive taxes.)

51

However, this case does not tell the whole story. It may be used forteaching purposes to help students understand what is meant by a regressivetax.

Typical sales tax figures may be obtained from the instructions whichaccompany Federal income tax form 1040 as reproduced below. In using thistable special attention should be paid to the first paragraph and to foot-note 4.

1971 Optional State Sales Tax Tables

If you Itemize your deduction, 'you may use these tablesto determine the general sales tax to enter on line 13,Schedule A. If you are able to establish that you paidan amount larger than that shown, you are entitled to de.duct the larger amount. The sales tax paid on the purchase of an automobile may be added to the table amountexcept in Vermont, or in West Virginia if titled afterMarch 31, 1971,

If your Income was more than $19,999 but less than$100,000, compute your deduction as follows:

Step 1For the first $19,999, find the amount for yourfamily size in the table for your State.

Step 2For each $1,000 or fraction tliereof of in.come over 819,999, but less than $50,000.

. add 2 percent of the amount you determined inStep 1, above.

Step 3For each $1,000 or fraction thereof of incomeover $49,999, but less than $100.000, add 1percent of the amount you determined in Step1, above.

II your Income was $100,000 or more, deduct 210 per.cent of the amount determined In Step 1, above,

Income'Mississippi Missou rl 2 Nebraska 2 Nevada a

Family size (persons)Over

1 2 384 5 5


1 2 3 4 5 5


1 2 3 4 5 5


1 2 3 4 5 5

Under $3,000...$300043999...$4,00044,499...95,00045,499...$8,00046,999...57,00047,999..$8,00048,999...$9,000-$9,999...910,000-910,999.811,000-811,99S_$12,000412,999913,000413,999.;14,000-514,999.

$15,00041'.,999.$16,000-a16,999.917,000417,999$16 000 - 918,999.919,000 - 919,999_

$70 $83 $100 $109 $10986 104 124 135 135

100 123 144 159 159

113 141 163 181 182125 158 181 201 204136 173 198 220 225147 188 214 238 246157 203 230 256 266167 217 244 273 285176 230 258,289 304185 243 272 305 322194 256 285 320 340202 269 298 335 358210 281 311 350 375218 293 323 364 392226 305 335 378 408234 316 347 392 424241 327 359 405 440

$37 $48 $52 $59 $59 56345 58 65 72 74 7953 68 76 83 87 93

59 77 86 94 99 10665 85 95 103 III 11871 93 104 112 122 13077 100 113 121 132 14183 107 121 129 142 15288 114 129 137 151 16293 121 137 145 160 17298 127 144 152 169 182

103 133 151 159 178 191107 139 158 166 187 200III 145 165 173 195 20:115 151 172 179 203 218119 156 179 185 211 227123 161 185 191 219 235127 166 191 197 226 243

$30 $39 $43 $49 950 $5337 48 54 60 62 6643 56 63 69 73 78

49 63 71 78 83 8954 70 79 86 92 9959 76 87 94 101 10964 82 94 101 109 11868 88 101 108 117 12772 94 108 114 125 13676 99 114 120 133 14480 104 120 126 140 15284 109 126 132 147 16088 114 132 138 154 16892 119 138 144 161 17596 124 143 149 168 18299 128 148 154 174 189

102 132 153 159 180 196105 136 158 164 186 203

$33 $45 $47 $57 $57 $5841 54 58 68 69 7248 63 68 78 80 84

54 71 77 86 91 9560 78 86 94 101 10665 85 94 102 110 11670 92 102 109 119 12675 98 109 115 128 13580 104 116 121 136 14485 110 123 127 144 15289 116 130 133 152 16093 121 136 139 159 16897 126 142 144 166 176

101 131 148 149 173 184105 136 154 154 180 191109 141 160 160 187 198113 146 166 166 194 205117 150 172 172 200 212

Income'New Jersey New Mexico 2 New York 4 North Carolina . North Dakota Ohio" Oklahoma 2

Familysize(persons )4 or 5 and

under over


1 2 3 4 5 5

Fami y size persons)Over

181 3 4 5 5


1 2 384 5 5


1 2 384 5 5


182 384 5 5

Family size(persons)Over

1 2 384 . 5 5

Under $3,000_.43,00043,999_94,00044,999_95,00045,999_$6,000-$6,999,--$7,00047,999...$8,00048,999...99,00049,999...910.000410,999.911,000411,999.912,000-912,999-913,000-913,999.914,000-414,999.915,000415,999.916,000-916,999.$17,000417,999.918,000 - 918,999.919,000419,999.

$26 $3435 4444 54

52 6360 7168 8076 8884 96

92 103100 'III107 118115 125122 132

130 139137 146144 153151 160159 166

$58 V7 $78 $92 $92 $9271 94 96 III 111 11383 109 113 128 128 134

94 123 129 143 146 153104 135 144 157 163 171113 147 158 170 179 188122 158 171 183 194 204131 169 184 195 209 220

139 179 196 206 223 235147 189 208 217 237 250155 199 220 227 250 264162 208 231 237 263 278169 217 242 247 276 291

176 226 253 256 289 304183 235 263 265 301 .317190 243 273 274 313 330196 251 283 283 324 342202 259 293 293 335 354

$33 $39 447 $50 $5044 51 59 63 6353 62 70 75 75

62 72 80 86 8671 82 90 97 9780 91 99 107 10789 100 108 117 11797 109 116 126 127

105 118 124 135 137113 127 132 144 147121 135 140 152 157129 143 147 160 167136 151 134 168 177143 159 161 176 186150 167 168 184 195157 174 175 192 204164 181 182 199 213171 188 180 206 222

$35 $40 $50 $54 $5543 51' 62 68 6950 60 73 80 82

57 69 82 92 9463 77 91 102 10669 85 100 112 11674 93 108 122 12679 100 116 131 13684 107 123 140 14689 114 131 149 15694 121 138 158 16598 128 145 166 174

102 134 152 174 183106 140 158 182 192110 146 164 190 200114 152 170 197 208118 158 176 204 216122 164 181 211 224

$41 $50 $57 $81 $8351 62 71 77 8160 73 84 92 96

69 84 96 106 11177 94 108 119 12585 103 119 131 13892 112 129 143 15199 121 139 154 164

106 129 149 165 176112 137 158 176 188118 145 167 186 199124 152 176 196 210130 159 184 206 221

136 166 192 216 232142 173 200 226 243148 180 208 235 253153 187 216 244 263158 194 224 253 273

$29 $35 $36 $3638 45 47 4746 55 58 58

54 64 68 6962 73 78 8070 82 87 9078 90 96 10085 98 .105 110

92 106 .114 11999 114 123 128

106 121 132 137113 128 141 146120 135 149 155

127 142 157 164133 149 165 173139 156 173 182145 163 181 191151 170 189 199

$25 $29 $35 $38 $3831 37 43 47 4836 44 51 56 58

. 41 50 58 64 6645 56 64 72 7449 61 70 79 8253 66 76 86 8957 71 82 93 96

60 76 87 99 10364 81 92 105 11068 86 37 111 11771 91 102 117 12374 96 107 123 12977 100 112 129 11580 104 117 134 14183 108 121 139 14786 112 125 144 15388 116 129 149 159

Total of.adjusted gross income (line 18, Form 1040) and nontaxable receipts such as social security, veterans', and railroad retirement benefits, andworkmen's compensation.

° Local sales taxes are not included. Add an amount based on the ratio between the local and State sales tax rates considering the number ofmonths the taxes have been in effect.One percent local sales tax is Included. If the optional Mr cent CountyCity Relief Tax is paid, add 1 percent for each month the tax is In effect.

4 Local sales taxes are not included. If paid all year add (a) 28 percent if the local tax rate is 1 percent, (b) 56 percent if the local tax rate is 2 percent,(c) 84 percent if the local tax rate is 3 !percent: Otherwise, add a proportionate amount.

° Local sales taxes are not included. Add 33 percent if paid all year. Otherwise, add a proportionate amount." Local Sales taxes of 1/2 cent are not included. Add 1 percent of the table amount for each month the county tax is in effect." Local sales taxes are Included. Taxpayers not paying local sales taxes should use 90 percent of the amount allowed."The sales tax paid on an automobile purchased in Vermont and sales tax paid on an automobile titled in West Virginia after March 31, 1971,are not

deductible because these taxes are imposed at a higher rate than the general sales tax rate.*Local sales taxes are included,

52

An illustration of the combined effect of the 4 percent New York Statesales taxes and income taxes is given below. From this illustration thestudent should get a more accurate picture of the total impact of these twoforms of taxation on taxpayers in various income brackets. However, tax-

payers pay other taxes. A good study would be to take all forms of taxes,such as sales taxes, income taxes paid to all levels of government, propertytaxes, excise taxes, etc., and find what percent of gross income various tax-

payers pay.

EXAMPLES OF REGRESSIVE AND PROGRESSIVE TAXES*

Taxes and Percent of Income Annual Income$5,000 $10,000 $15,000 $25,000

$ 80 $ 124 $ 161 $ 207

1.6 percent 1.2 percent 1.1 percent .8 percent

$ 80 $ 334 $ 634 $ 1,4801.6 percent 3.3 percent 4.2 percent 5.9 percent

Sales. Tax, 4 percent rate(see preceding page)

Percent of IncomeSaleS Tax and Personal

Income Tax CombinedPercent of Income.

* Note that the taxpayer whose income is $5,000 pays 1.6 percent of hisincome in sales and income taxes; the taxpayer who earns $25,000 pays5.9 percent. The combined tax is progressive. The taxpayer with the$25,000 income earns five times as much as the one with $5,000 income.After paying sales and income taxes, the taxpayer with the $5,000 incomehas $4,920 left. The taxpayer who earns $25,000 has $23,520 left or 4.7times as much as the person with the lower income.

Included in the sales tax material which follows are charts showingthe amount of sales tax which retailers must charge for purchases up to $10.These charts can be extended to cover larger amounts, or the sales tax forpurchases in excess of $10 can be determined by multiplying the amount ofthe sale by the applicable sales tax rate and rounding the result to thenearest whole cent. If the applicable sales tax rate in a particularcounty is 4 percent and the sale amounts to $127.44, the sales tax would be$5.10 ($127.44 x .04).

Much informative literature regarding the sales tax laws of New Yorkis obtainable free by writing to State of New York, Department of Taxationand Finance, Sales Tax Bureau, State Campus, Albany, N.Y. 12227. However,

a word of caution is in order. Because of changes in the law, these pub-lications may be out of date. If you're not certain about a particular law,write to the Sales Tax Bureau at the above address for the latest law orcontact your local Sales Tax Bureau. This especially is true for resi-dents of New York City,inasmuch as the New York State Legislature haspassed enabling legislation which permits changes in the sales tax for theCity of New York. In some cases the City of New. York has not passed legis-lation to implement these new provisions of the State law. Therefore,teachers in New York City should be especially alert to changes which maymake certain services which now are exempt, such as dry cleaning andlaundering services, taxable under the new law.

53

As a result of the study of this module, class discussion, and independentresearch, students should demonstrate

. a clear understanding of the meaning of the terms "sales taXuand

uuse tax"

. ability to differentiate between personal and real property andtangible and intangible property

. a knowledge of the distinctions between a producer, wholesaler, jobber,distributor, dealer, and ultimate (final) consumer, and how each fitsinto the tax picture

. an understanding of the system used by the State to collect anddistribute sales taxes

. a knowledge of the sales tax law which makes collection of sales taxesby retailers mandatory

. a knowledge of the goods and services to which sales and use taxes areapplicable and those that are exempt from the tax

. an understanding of different levels of government that may levy salestaxes

a knowledge of the different sales tax rates charged in variouscounties within the State

ability to use sales tax charts and to calculate sales or use taxes onsales below and above $10

ability to determine net sales (excluding the sales tax) if given thesales tax rate and total sales including the sales tax

ability to use adding and calculating machines to solve sales taxproblems

ability to differentiate between a regressive, a proportional, and aprogressive tax

ability to measure the financial impact on the consumer of the salestax in terms of annual income

an understanding of the needs of the government to levy taxes whichare "acceptable" to taxpayers as part of a comprehensive system oftaxation to raise revenue to carry out governmental programs

knowledge of the total amount of taxes which must be paid by theconsumer in a particular county on a gallon of gasoline, a pack ofcigarettes, a motor scooter, a car, and other commodities and services,compared with similar taxes in other counties

a knowledge of what Stage agency to contact to obtain accurateinformation regarding sales-taxes

ability to interpret simple graphs

an understanding of how tax laws develop and how consumers can influencesuch legislation

the difference between excise taxes and sales taxes

the difference between a sales tax and a value-added tax (VAT)

54

In studying sales taxes, students frequently should be given the op-portunity to find the sales tax by using the sales tax charts. Also, theyshould learn how to calculate sales taxes using the applicable sales taxrace. Whenever feasible, students should use adding machines (continuousmultiplication) or calculating machines to verify or compute answers. Manystudents get part-time or full-time jobs where they must know how to findthe sales tax on a retail sale. The consumer education teacher is in agood position to provide this bit of vocational information.

I LIKE TO PAY TAXES.WITH THEM I BUY

CIVILIZATION."

Oliver Wendell Holmes

55

UNDERSTANDINGS

WHAT IS A SALES TAX?

.A sales tax is a taxon the consumption oruse of talgible, per-sonal property, andservices. The taxis based on the re-tail money value ofthe commodity orservice.

SALES AND USE TAXES


. Ask pupils whether salestaxes are much of a prob-lem for them. Do theymind the 'lit tax on softdrinks? or a 2t tax on ahot dog? or a 6 or7 percent tax on records,musical instruments, orsporting goods? How muchdo they pay in State salestax on a gallon of gaso-line? How much does thesales tax amount to on thefamily purchases for ayear? (Note: The tablesin the Federal income taxinstruction sheet forform 1040 list averagesales taxes that can beincluded as an itemizeddeduction for variousincome levels.) Using theamount of sales tax appro-priate for their family income, have pupils list theitems that they would liketo have that could be pur-chased for the amount ofthe tax.

. Discuss the followingquestions with the class:

- What is the meaning ofthe teretangible,personal property"?What are some intan-gible things? What aresome tangible things?

- Which items in theclassroom are personalproperty? Which arereal property?

56,

SOURCE

Fisk and Snapp,"Applied BusinessLaw," Ninth Edi-tion, South-Western, NewRochelle, N.Y.1966. Part 11-B

. See page 52 of thispublication forsales taxes whichmay be deducted bytaxpayers whoelect to itemizedeductions. To

the figures given,the taxpayer mayadd sales taxespaid on automobilesand the local salestax.

Tangible propertyincludes allthings capable ofphysical posses-sion.

Personal propertyis portable prop-erty, such asdesks, chairs, carsradios, etc.,whichare not permanentlyattached to realproperty.


Merchandise purchasedfor resale is nottaxable. Generally,the sales tax ischarged to the finalconsumer.

WHAT IS A USE TAX?

A use tax is a tax tocompensate for thedifference between thetaxes on an out-of-state and an in-statepurchase.

A resident of New YorkState who purchases acommodity out-of-statewhich would be subjectto a sales tax if pur-chased in New YorkState must pay a com-pensating use tax inNew York.

- Does the sales taxapply to sales ofstocks or bonds?(Securities are intan-gible property. There-fore, they are nottaxable.)

What is the differencebetween `a'' kolesaler,

a dealer, and an ulti-mate consumer? Which

these three is respon-sible for collectingsales taxes and remittingthe amount collected tothe Sales Tax Bureau?(Answer. Generally, thedealer sells to theultimate consumer and isliable for collectingthe tax. But if a

wholesaler sells to theconsumer, he must collectthe tax.

SOURCE

A stock certificateof tangible

property; it repre-sents merely "aninterest in somephysical property."

Real property con-sists of land,buildings, andother things permanently attachedto the land.

Anderson and Kumpff,"Business Law,"South-Western, New

of Rochelle, N.Y.,1967. Chapter 54

State of New York,Department of Tax-ation and Finance,"New York Stateand Local SalesTax Information,Booklet No. 1"(Rev. 12/67) StateCampus, Albany,New York 12227

Discuss the following State of New York,case: Felix Gonzalez, Department of Tax-a New York resident, ation and Finance,purchased a car in Vermont "New York Statefor use in New York. Is and Local Salesthis purchase taxable in Tax Information,New York? (Answer. Yes. Booklet No. 2"Gonzalez must pay a com- (Rev. 9/7) Statepensating use tax on his Campus, Albany,purchase. The rate is New York 12227the same as the rate ap-plicable in the countywhere he resides.)

Vary the facts in theabove case so that, for

57


WHO COLLECTS THE SALESTAX FROM THE CONSUMER?

The retail vendorcollects the tax. He

is legally obligatedto turn it over tothe State at specifiedintervals.

example, a resident ofQueens County, where thesales tax is 7 percent,purchases a car inSchenectady County, wherethe rate is 4 percent.(Answer. The QueensCounty resident wouldhave to pay the 7 per-cent New York Citysales tax.)

Discuss some of the prob-lems which may arise asa result of making thedealer responsible forcollecting the sales tax,such as

- The dealer may have toinvest his own moneyto purchase a new cashregister with additionalregisters to record thetax.

- The work of collectingand recording sales taxinvolves extra man-hoursfor which employees mustbe paid.

- Some dishonest or care-less dealers may spendsales tax money col-lected for their per-sonal needs instead ofremitting it.

- The dealer may not chargethe tax to some cus-tomers.

58

SUGGESTED PUPIL AND

UNDERSTANDINGS TEACHER ACTIVITIES

DOES THE STATE OF NEW YORKLOSE MONEY BECAUSE VENDORSFAIL TO REMIT SALES TAXES?

Tax delinquencies inNew York State run intomillions of dollars.

Most delinquent tax-payers are small busi-nessmen such asrestaurant, servicestation, and neighbor-hood grocery storeowners.

ARE ALL RETAIL PURCHASESOF TANGIBLE, PERSONALPROPERTY SUBJECT TO THESALES TAX?

In general; food, bev-erages, (except alco-holic beverages)dietary food, drugs,

Discuss the followingquestions:

- What is one method that

a business firm may useto be sure it can payits sales tax obliga-tions to the State?(Answer. Open aseparate bank accountand deposit salestaxes collected tothis account.) Whatother suggestions dopupils have?

- Should dealers who col-lect sales taxes forthe government receivecompensation for theexpense they incur incollecting this tax?

. Have students suggestbetter ways to raiseState revenue thanthe sales tax.

Teachers should preparea list of tangible, per-sonal property includingboth items subject to the

59

SOURCE

"Metroland SalesTax DelinquentsMounting," AlbanyKnickerbocker News-Union Star, July21, 1971

During 1970 alone,the State issuedmore than 65,000tax warrants tocollect delinquentSales taxes fromdealers. Duringthe same year, theState closed 392businesses forfailure to paytheir sales taxobligations.

Write to Sales TaxBureau, Departmentof Taxation andFinance, State

UNDERSTANDINGS

and medicines are nottaxable.

Candy, fruit juiceswhich contain lessthan 70 percentnatural fruit juice,soft drinks, sodas,and alcoholic bev-erages are taxable.

Medical equipment (notdesigned for use by aparticular individual,e.g., eyeglasses,artificial limbs, andhearing aids) is tax-able.

Toilet articles andcosmetics are taxable.

Newspapers and period-icals are not taxable,but books are taxable.


sales tax and items notsubject to the tax. Asa pretest have studentscheck which items theythink should be taxableand which not. Use theresults of the pretestto explain the generalrationale of the salestax, i.e., some neces-saries, such as foodare not taxable.

Elicit comments on thefollowing statements:

- The sales tax is a con-venient and efficientmethod of collectingtaxes from persons whohave the money to payfor goods and services.

- The sales tax is a re-gressive tax designedto "soak,the poor."

- A progressive incometax is a fairer taxthan a sales tax be-cause it places theburden of taxation onpeople with big incomes.

Ask students to expresstheir opinions about thefairness of charging asales tax on items suchas lipstick, baby oil,wheel chairs, perfume,telephone bills, fueloil, gas, and electricityfor heating and lightingthe home. (All of theabove items are taxableeither as tangible, per-sonal property or as itemssubject to the consumer'sutility tax.)

60

Campus, Albany,New York 12227,

for a copy ofBooklet St-375(7/65) which listsexempt and taxablefoods, beverages,and drugs. Also,request BookletNo. 1, "New YorkState and LocalSales Tax Infor-mation" from thissource.


ARE ALL SERVICES PRO-VIDED TO CONSUMERS TAX-ABLE?

Doctors' fees and hos-

pital charges are nottaxable.

Rentals of homes arenot taxable, buthotel and motel roomscosting more than$2 per day aretaxable. However, .

if the occupancy ofthe hotel or motelroom is for 90 daysor more, the rentalis not taxable.

Laundry, dry cleaning,tailoring, weaving,press -ng, shoe repair-ing,and shoe shiningare not taxable.(But see note op-posite.)

Repairs (includingparts and labor) ofautomobiles, radioand TV sets, andother appliances aretaxable.

Have students prepare awall chart showing tax-able and nontaxable,(exempt) tangible, per--sonal property.

Have students prepare achart showing taxableand nontaxable services.

. Refer to Mount Vernon.Sales and Use Tax, ef-fective June 1, 1972.(page 62)

The New York State Legis-lature has passed a billwhich permits the City ofNew York to levy a salestax on laundry, dry clean-ing services, etc. Thetax would be applicableonly in the city (5counties) -- not therest of the State. Is

this a "fair" tax? Is

it a regressive or aprogressive tax?

. Ask students to determine,whether New York Cityenacted the sales taxeson laundry, dry cleaning,etc. (Not enacted asof February 1973.)

61

SOURCE

Sales Tax Bureau

Bulletins, No. 1

and No. 2

Sales Tax BureauST-151.4 (4/72)

"Lindsay Despairsof More State Aid.Mr. Lindsay saidthat he sought nonew city taxes be-yond the $141-mil-lion in nuisancetaxes authorizedlast year by theLegislature butnot yet enactedby the City Coun-.cil. He rejectedproposals by theCity Councilleadership for in-creases.in the in-come tax and the.stock-transfer tax,City Council leadersresponded to theMayor's statementby reiteratingtheir objection to

(continued.

on pap66)

ST151..1 (4/72) State of New York - Department of 1 axatian and linnna Sates To.. BureouState Campus Albany, New York 12727

SALES AND USE TAX CHANGES EFFECTIVE JUNE 1, 1972

Mount Vernon, New York

ALL VENDORS: Effective June 1, 1972, the fallowing local jurisdiction has enacted laws which may elect your tax collections andpayments. If you conduct a business or deliver to customers in this locality, the change sho ild be anticIpatrf.

LOCALITY ENACTING A NEW TAX

The City of Mount Vernon on February 23, 1972 enacted a 1% local sales and use tax. The combined State and local tax rote will be 5%within the City of Mount Vernon and applies to all of the taxes authorized by law. The sales and use tax in effect in the remainder ofWestchester County, except the City of Yonkers where the rate is 7%, remains at 4%.

Where delivery or transfer of possession in made on or after June 1,1972, the new combined rate shown above applies except in thefollowing instances:

Lay-away soles

The old rate would apply only if (1) a written agreement was made rrior tc February I, 1972, (2) the item sold was segregated,from other similar property in the possession of the vendor prior to Zebruary 1, 1972, and (3) the purchaser has paid at leant 10%of the sales price before June I, 1972.

Pre-existing lump sum ar unit price construction contracts

If such a contract was irrevocably entered into prior to the date the law imposing the local sales and use tax was enacted or suchcontract resulted from the acceptance by a governmental agency of a bid accompanied by a bond or other performance guarantywhich was irrevocably submitted prior to February 23, 1972, the contractor will be allowed credit or refund of.the new-local salesor use tax in respect to purchases if the tangihle personal property is used solely in the performance of such contract.

Monthly utility bills for gas and electricity, based an meter readings

If the meter is read on or after June 1, 1972, the new fax will be added to the billing based on such reading only if more than 50%of the period covered by such bill is for the period after May 31, 1972.

Monthly telephone bills

The new tnx will be added to all bills dated'on or after June 1, 1972, except those charges for services furnished before the dateof such bill shall be taxable at the old rate..

Sociol and athletic dub dues

The new tax will be applied to all bills covering any period which-begins on or after June 1, 1972. The new tax will not be appliedto bills covering periods which begin before June 1, 1972. A quarterly or semi-annual billing malted prior to June 1 for a periodbeginning on or after June 1 will be subject to the new rate.

Admissions

Amusement admissions 'to an event occuring on or after June 1, 1472 are tuxahle. at the new rate' unless the tickets were actually.sold 11/1.1 -delivered to 'the purchaser prior to June 1, 1972, regardless of whether the admission charge was paid before such date.

-Hotel accuponcy .

The new rate, applies to all daily rentals; on or after June 1, 1972, unlesa the occupant is a permanent resident (ninety dayaconsecutive occupancy). If the rental is on otht-r than n tinily basis the new rate shall be applied to the charge, on a pro ratabasis.

62

ri-h'ea ,,..&...,,i.,,i.:,,....wewv,k,JOHN V. LINDSAY, Mayor

FINANCE ADMINISTRATION

BULLETIN

RICHARD LEWISOHNFinance Administrator

Vol. 2, No. 3July 1971

NEW CITY TAX PROGRAM ENACTEDIncome Taxes

For taxable years beginning on or after January 1, 1971, the Personal Income Tax and NonresidentEarnings Tax rates are increased by approximately 80% on the average. (Local Law No. 44 of1971) New withholding tables for the balance of 1971 reflecting these increases can be obtainedat the Department of Tax. Collection, 139 Centre Street, New York, N.Y. 10013, Room 110, orby calling 966-3025.

For taxable years beginning on or after January 1, 1971, the City's Unincorporated Business Taxis made applicable to self-employed professionals including lawyers, dentists, doctors, engineersand veterinarians. (Local Law No. 36 of 1971)

For tax years beginning on or after January 1, 1971, the City General Corporation Tax rate onnet income is increased from 5.5% to 6.7%, and the rate of the alternative corporate tax basedupon net income plus officers' salaries is similarly increased. (Local Law No. 45 of 1971)

Excise Taxes.

Effective July 1, 1971, a new tax of 20 per container is imposed on rigid and semi-rigid plastic

containers sold to retailers and intended to be used in connection with retail sales or as containersfor products intended for retail sale. The tax, with certain exceptions, does not apply to containers

used as receptacles for food, food products, beverages, dietary food and health supplements soldfor human consumption. Normally, the tax is payable by the seller or supplier of plastic containerswho sells or furnishes them to the retailer. A cr.:tclit of 10 per container is allowed where thecontainer is manufactured with at least 30% of recycled plastic. The first return for this tax mustbe filed by October 20, 1971. (Local Law No. 43 of 1971)

Effective July 1, 1971, an additional tax on cigarettes at the wholesale level is levied at 30 or 40per 20- cigarette: pack, depending upon their nicotine and tar content according to Federal TradeCommission surveys published in the Federal Register. (Local Law No. 34 of 1971)

'Effective August 1, 1971, a new State-collected 1¢ per gallon tax will be imposed on motor fuelcontaining more than .5 grams of lead per gallon sold within New York City. (Local Law No. 40of 1971)Effective July 1, 1971, the 3% City Sales Tax as well as the 4% State Sales Tax will be appliedto sales of food and beverages under $1, previously untaxed, when sold in or by restaurants, tavernsor other establishments. (Local Law No. 41 of .1971)

63

We°1;Lek,JOHN V. LINDSAY, Mayor

FINANCE ADEISTRATION

BULLETIN

RICHARD LEWISOHNFinance Administrator

Vol. 2, No.3 July 1971

Real Estate TaxeS and Charges

The City Council has fixed the basic tax rate at $5.97 for each $100 of assessed valuation, anincrease of 8¢ over the 1970 -71. rate.Effective January 1, 1972, the tax exemption is revoked as to several classes of real property

.(where exemption is not mandated by the State Constitution), including property owned by medical,dental, and pharmaceutical societies, patriotic and historical societies, and bar associations. Taxeson those classes of property for the period from January 1, 1972 to June 30, 1972 will be dueand payable on June 1, 1972. (Local Law No. 46 of 1971)A proposal authorizing the. imposition of charges for such services as water supply, police andfire protection,_ and sanitation on certain tax-exempt property is awaiting action by the Board ofEstimate.

RECENT TAX RULINGS

General Corporation TaxShareholders of a dissolved and liquidated cor-

poration who have received assets of the corporationin distribution are liable for the unpaid taxes of thecorporation to the extent of the value of the assetsreceived.

Failure to report changes or corrections in federal or state taxable income or tax within 90 days aftera final determination will subject a taxpayer to penal-ties.

A corporation's administrative difficulties andchanges in personnel and tax reporting proceduresarising from reorganization are not reasonable causessuch as will excuse a late-filing penalty.

Cigarette TaxA mail-order purchaser of cigarettes from an

out-of-state concern can be assessed the unpaid ciga-rette tax due, a penalty of 50% of the tax, and interestat 1% per month for each month of delay in payingthe tax due. If a purchaser has in his possession orcontrol more than 10 cartons of unstamped or unlaw-fully stamped packages, an additional penalty of $100for each carton in excess of 10 may be imposed.

Unincorporated Business TaxA partnership operating a Florida hotel, which

maintains a local business office for the purpose ofadvertising, soliciting, and taking reservations, is car-rying on business in the City and is subject to tax.

Commercial Motor Vehicle TaxStation wagons having commercial license plates

are presumed to be used for commercial purposes andare subject to tax if used principally. in the City orused principally in connection with a business carriedon within the City.

Write Finance Administration, Correspondence. Unit, 139 Centre St., NewFOR INFORMATION: York, N.Y. 10013

Phone 964 - 5900


ARE SALES BY FARMERSEXEMPT FROM SALESTAXES?

Generally, yes becausefarmers produce foodfor human consumptionor for resale.

Sales of items likefirewood, Christmastrees, etc.,are tax-able.

In areas where studentsmay be interested infarming, have them readSales Tax Bulletin No.3 and prepare a chartof items purchased byfarmers which are tax-able and which are taxexempt.

65

SOURCE

the $141-milliontax package alreadyauthorized. 'Again,he, (Mayor Lindsay)is asking for the$141-million taxpackage, which isregressive andwhich will hurtthe poor the most,'Thomas J. Cuite,Council Majorityleader, and Mario.Merola, FinanceCommittee chairman,said in a jointstatement."The package in-cludes taxes onshoe shines, beautyshops and auto use."The Countil

leaders said thatthe Mayor 'seemsto be aligned withthe Governor andthe State Legis-lature in insist-ing that the citycan afford thisonerous tax pack-age.'" New YorkTimes, April 11,1972

Write to Sales TaxBureau for BulletinNo. 3 (ST-213, Rev.4/69). "Questionsand Answers forFarmers."


DO ALL STATESEXEMPTFOOD SALES FROM SALESTAXES?

. No. Many statescharge a sales taxon food purchasedin food stores. NewYork does not. Sixstates allow apersonal income taxcredit for salestaxes paid at foodstores.

WHICH LEVELS OF GOVERN-MENT MAY LEVY SALESTAXES IN NEW YORK STATE?

. Sales taxes may be iMposed by the State,county, city, or cityschool district. If,

for'example,the Staterate. is 4 percent andthe county rate is 2percent, vendors mustcollect 6 percent ofthe money value of thesale (less trade-inallowance) or service.

Another chart may beprepared showing itemson which the farmerwho sells at re-tail has to chargethe sales tax.

. Ask students to commenton the following state-ment: Firewood is anecessity and, there-fore, should not besubject to a sales tax.

. Write to AdvisoryCommission on Inter-governmental Relationsfor annual report"Significant featuresof State and LocalTax Systems."

. All states charge asales tax on restaurantfood. Is this adesirable practice?

. Reproduce Form ST-220,New York State andLocal Sales Tax Ratesby Community found onpage 69. Have

students compare thecombined rates in thevarious countiesespecially those closeto home.

66

Write to' ConsumerEducation, 11 ParkPlace, New York, N.Y.10007, for "Focus onFood Markets," May 15,1972,and otherbulletins.

. State of New YorkDepartment of Tax-ation and Finance,Sales Tax Bureau,Form ST-220 New YorkState and Local SalesTax Rates by 'Community.(Rev. 5/71). StateCampus, Albany, NewYork 12227


,0-ALL COUNTIES WITHIN`THE STATE LEVY SALES'(OR COMPENSATING USE)TAXES AT THE SAME RATE?

The sales tax rate fora particular countyincludes the Statesales tax plus localsales taxes, if any,imposed by the county,city, or city school dis-trict. Some countiesdo not levy any salestax. Therefore, thecombined State andcounty tax may varyfrom 4 percent to7 percent.

WHAT IS THE MEANING OFTHE TERM "RATE" USEDIN CALCULATING TAXES?

. In figuring taxes,the tax rate repre-sents a part of 100cents or $1. A salestax rate of 7 percentmeans that if aconsumer buys anarticle for $1,- he

. Discuss the following re-lated'questions

- Is it fair for the purchaserof a car' purchased in acounty where the sales taxis 7 percent to have to paya greater sales tax than inan adjoining county wherethe rate is only 4percent?

- Should the State mandatea uniform statewidesales tax? Or shouldeach county be permittedto continue to decide whattax rate to charge?

How may the differencein sales tax rates be-tween adjoining countiesaffect merchants in thecounty where the rateis higher?

Do any pupils or theirparents travel to anotherarea to purchase goods because the sales tax islower in the more distantplace?

Give students a diagnos-tic pretest containingproblems dealing withpercents and with :salestaxes. Have students usesales tax charts (page

69) to find the salestax on sales amountingto less than $10. Have

67

O

Grossnickle andBrueckner, "Dis-covering Meaningsin ElementarySchoolAathematics,Chapter 13, Holt,Rinehart, andWinston, New York,1963

UNDERSTANDINGS

must pay an additional7 cents tax ($1

x .07), i.e., 7cents out of100 cents. Therate usually is ex-pressed as a percent;but a rate of 7 per-cent may also be ex-pressed as .07, orseven out of a hundred,or 7/100. Both thefractional form andthe decimal form maybe used in calculatingsales taxes. If aproduct sells for $700,the tax can be computedby simply multiplying$700 x 7/100. If .a'

product sells for$22.67, the use of thedecimal' form is indi-

cated.($22.67 x .07$1.59) (Round answerto nearest whole cent.)

IF A PRODUCT SELLS FOR APRICE WHICH INCLUDES THESALES TAX, HOW DO YOUFIND THE AMOUNT OF THESALES TAP

Students, as well asadults, frequently havedifficulty with

SUGGESTED PUPIL ANDTEACHER ACTIVITIES SOURCE,

them calculate sales taxesat various rates for sAlesof more than $10.

Analyze results of pretestand do remedial teachingas needed.

Using the sales tax chartson page 69 of this pub-lication, find the salestax on taxable sales under$10 using different taxrates.

Calculate the sales tax ontangible personal propertyretailing for amounts suchas $30, $300, $3,000,apply-ing rates of from 4 percentto 7 percent.

Compare the sales tax on acar selling for $4,000 in acounty where the sales taxrate is 4 percent with thesales tax in a county wherethe rate is 7 percent.

Snyder, L. R"Essential Busi-ness Mathematics,"Fourth Edition,McGraw-Hill, New.York 958

Where feasible', give stu-dents an opportunity to useadding machines and calculat-ing machines to solve salestax problems.

What is done with the moneycollected over and abovethe statutory rate? What.

happens if there is under-collection?

Have students practicechanging percents todecimals.

continued on page 75)

68

1

Piper, Fairbank,and Gruber,"Applied Business

ST-110.4 (5/71) % !

N.Y. State Department of Taxation and Finance - Sales Tax Bureau

4% SALES AND USE TAX COLLECTION CHARTRevfised - Effective June 1, 1971 4%

Amountof Sale

Tax to be AmountCollected of Sole

Tax to heCollected

$0.01 to $0.12 None $5.13 to $5.37 $.21

.13 to .33 1st 5.38 to 5.62 .22

.34 to .58 24 5.63 to 5.87 .23

.59 to .83 34 5.88 to 6.12 .24

.84 to 1.12 44 6.13 to 6.37 25

1.13 to 1.37 54 6.38 to 6.62 .26

1.38 to 1.62 64 6.63 to 6.87 27

1.63 to 1.87 74 6.88 to 7.12 .28

1.88 to 2.12 84 7.13 to 7.37 .29

2.13 to 2.37 94 7.38 to 7.62-, ....... .30

2.38 to 2.62 $.10 7.63 to 7.87 .31

2.63 to 2.87 .11 7.88 to 8.12 .32

2.88 to 3.12 .12 8.13 to 8.37 .33

3.13 to 3.37 .13 8.38 to 8.62 .34

3.38 to 3.62 .14 8.63 to 8.87. .35

3.63 to 3.87 .15 8.88 to 9.12 .36

3.88 to 4.12 .16 9.13 to 9.37 .37

4.13 to 4.37 .17 9.38 to 9.62 .38

4.38 to 4.62 .18 9.63 to 9.87 .39

4.63 to 4.87 .19 9.88 to 10.00 .40

4.88 . 5.12 .20

On sales over $10.00, compute the tax by tAtiplying the amount of sale by

the appiica6le tax rate and rounding the result to the neorest whale cent.

ST-110.6 (5171)N.Y. State Department of Taxation -and Finance - Sales Tax Bureau

161.Q1SALES AND USE TAX COLLECTION CHART

Revised - Effective June 1, 1971 [6%Amountal Sale

Tox to be AmountCollected of So le

ToxCollected

to be

$0.01 to $0.10 None $5.09 to $5.24 5.31.11 to .22 lo 5.25 to 5.41 .32.23 to .38 20 5.42 to 5.58 .33.39 to .56 30 5.59 to 5.74 .34.57 to .72 40 5.75 to 5.91 .35.73 to .88 54 5.92 to 6.08 . .36.89 to 1.08 60 6.09 to 6.24 .37

1.09 to 1.24 70 6.25 to 6.41 .381.25 to 1.41 81 6.42 to 6.58 .391.42 to 1.58 9.; 6.59 to1.59 to 1.74 5.10 6.75 to 6.91 .411.75 t o 1.91 .11 6.92 to 7.08 .42 r

1.92 to 2.08 .12 7.09 to 7.24 .432.09 to 2.24 .13 7.25 to 9.41 .442.25 to 2.41 .14 7.42 to 7.58 .452.42 to 2.58 .15 7.59 to 7.74.. ..... .... .462.59 to 2.74 .16 7.75 to 7.91 .472.75 to 2.91 .17 7.92 to 8.08 .482.92 to 3.08 .18 8.09 to 8.24 .493.09 to 3.24 .19 8.25 to 8.41 .503.25 to 3.41 .20 8.42 to 8.58 .51

3.42 to 3.58.. .21 8.59 to 8.74 .523.59 to 3.74 .22 8.75 to 8.91 .. .53

.3.75 to 3.91 .23 8.92 to 9.08 .543.92 to 4.08 .24 9.09 to 9.24 .554.09 to 4.24 .25 9.25 to 9.41 .564.25 to 4.41 .26 9.42 to 9.58 .574.42 to 4.58 .27 9.59 to 9.74 .58.4.59 to 4.74 .28 9.75 to 9.91 .594.75 to 4.91 .29 9.92 to 10.00 .60'4.92 to 5.08 .30

On sales over $10.00, compute the lox by multiplying the amount of sole bythe applicable tax rote and rounding the result to the nearest whole cent.

69

ST-I10.5 (5/71)

N.Y. State Department of Taxation and Finance - Sales Tax Bureau

SALES AND USE TAX COLLECTION CHARTRevised - Effective June 1, 1971 15 %

Amountof Sale

Tax to be Amount Tan robeCollected of Sale Collected

$0.01 to $0. )0 None $5.)0 to $5.29 5.26.11 to .27 10 5.30 to 5.49 .27.28 to .47 24 5.50 to 5.69 .28.48 to .67 5.70 to 5.89 .29.68 to .87 44 5.90 to 6.09 .30.88 to 1.09 50 6.10 to 6.29 .311

1.10 to 1.29 64 6.30 to 6.49 .321.30 to 1.49 74 6.50 to 6.69 .331.50 to 1.69 13; 6.70 to 6.89 .341.70 to 1.89 94 6.90 to 7.09 .351.90 to '2.09 5.10 7.10 to 7.29 .362.10 to 2.29 .11 7.30 to 7.49 . .372.30 to 2.49 .12 7.5D to 7.69 .382.50 to 2.69 .13 7.70 to 7.89 .392.70 to 2.89 .14 7.90 to 8.09 .402.90 to 3.09 ... . .15 8.10 to 8.29 .413.10 to 3.29 .16 8.30 to 8.49 .423.30 to 3.49 .17 8.50 to 8.69 .433.50 to 3.69 .18 8.70 to 8.89 .443.70 to 3.89 .19 8.90 to 9.09 .453.90 to 4.09 .20 9.10 to 9.29.. .464.10 to 4.29. ...... .21 9.30 to 9.49 .474.30 to 4.49 .22 9.50 to 9.69 .484. 50 to 4.69 9.70 to 9.89 .494.70 to 4.89 .24 9.90 to ;0.00 .504.90 to 5.09 .25

On sales over $10.00, compute the tax by multiplying the amount of sole by

the applicable tax rate and rounding the result to the :ietirest whole cent.

ST110.7 (5/71)N.Y. State Department of Taxation and Finance Sakes Tax Bureau

SALES AND USE TAX COLLECTION CHARTEffective June 1, 19717%1

Amount Tr.x lo beof Sole Co I:ectnel

$0.01 to $0.10. None.11 to .20. 14.21 to .33 24.34 to .47 34.48 to .62 44.63 to .76 54.77 to .91 64.92 to 1.07 74

1.08 to 1.21 801.22 to 1.35 .941.36 to 1.49 $.101.50 to 1.64 .111.65 to 1.78 .121.79 to 1.92 .131.93 to 2.07.... .142.08 to 2.21 .152.22 to 2.35 .162.36 to 2.49 .172.50 to 2.64 .182.65 to 2.78 .192.79 to 2.92 .202.93 to 3.07 .213.08 to ,3.21 .223.22 to 3.35 .233.36 to 3.49 .243.50 to 3.64 .253,65 to 3.78 .263.79 to 3.92' .273.93 to 4.07 .284.08 to 4.21 .294.22 to 4.35 .304.36 to 4.49 .31.4.50 to 4.64 .324.65 to 4.78 .334.79 to 4.92 .344.93 to 5.07 .35

7%Amount Tax to beof Sale Collected

$5.08 to $5.21 5.365.22 to 5.35. .375.36 to 5.49 .385.50 to 5.64 .395.65 to 5.78 .4D5.79 to 5.92 .415. 9310 6.07 .426.08 to 6.21 .436.22 to 6.35., ....... .446.36 to .456.50 to 6.64 .466.65 to 6.78 .476.79 to 6.92 .486.93 to 7.07 .497.08 to 7.21 .507.22 to 7.35 .517.36 to 7.49 .527.50 to 7.64 .537.65 to 7.78 .547.79 to 7.92 .557.93 to 8.07 .568.08 to 8.21 .578.22 to 8.35 .588.36 to 8.49 .593.50 to 8.64 .608.65 to 8.78 .618.79 to 8.92 .628.93 to 9.07 .639.08 to 9.21 .649.22 to 9.35 .659.36 to 9.49 .669.50 to 9.64 .679.65 to 9.78 .689.79 to 9.92 .699.93 to 10.00 .70

On sales over $10.00, compute the tax by multiplying the amount of sale bythe opplicable tax rate and rounding the result to the neorem whale cent.

The following list.includes the combined state sales tax and any county. sales tax effective DECEMBER 1, 1972. Thosecounties which enacted or increased the local tax effective DECEMBER 1, 1972 are shown in italics.

CODE COUNTYRATE

CODE COUNTYRATE

CODE COUNTY.

RATE

ALB Albany 7 HER Herkimer 4 RIC RichmondALL. Allegany 6 JEF Jefferson 7 ROC Rockland 4

BRX Bronx KIN Kings * SLA St. Lawrence 7

BRM Broome 6 LEW Lewis 4 SAR Saratoga 4

CAT Cattaraugus 7 LIV Livingston 7 SCE Schenectady 4

CAY Cayuga 7 MAD Madison 6 SCO Schoharie 4

CHA Chautauqua 7 MOR Monroe 7 SCY Schuyler 7

CHM , Chemung 7 MOG Montgomery 7 SEN Seneca 4

CHN Chenango 6 NAS Nassau 7 STE Steuben 7

CLI Clinton 7 NEY New York * SUF Suffolk 7

COL Columbia 6 NIA Niagara 7 SUL Sullivan 6

COR Cortland 7 ONE Oneida 4 TIO Tioga 6.DEL Delaware 4 ONO Onondaga 7 TOM Tompkins 7

DUT Dutchess 4 ONT Ontario 7 ULS Ulster 5

ERI Erie 7 ORA Orange 4 WAR Warren 7

ESS Essex 7 ORL Orleans 7 WAS Washington 7

FRA Franklin 7 OSW Oswego 4 WAY Wayne 7

FUL Fulton 7 OTS Otsego 6 WES Westchester 5

GEN Genesee 6 PUT Putnam 4 WYO Wyoming 4

GRE Greene 6 QUE Queens * YAT Yates 7

HAM Hamilton 7 REN Rensselaer 6

*New York City consists of the counties of Bronx, Kings, New York, Queens and Richmond,The combined tax rate in New York City is 7%.

Vendors must keep separate records of sales made within cities listed below for reporting purposes.The rate listed includes the state, county and city sales tax effective DECEMBER 1, 1972, Thosecities which enacted or increased the local tax effective DECEMBER 1, 1972 are shown in italics.

CITYRATE

COUNTY CODE

Amsterdam 7 Montgomery MOG

Canandaigua 7 Ontario ONT

Elmira 7 Chemung CHM

Fulton 7 Oswego OSW

Geneva 7 Ontario ONT

Glens Falls 7 Warren WAR

Hornell 7 Steuben STE

Ithaca 7 .Tompkins TOM

Kingston . 71 Ulster ULS

Mechanicville 6 Saratoga SAR

Mount Vernon 6 Westchester WES

Ogdensburg 7 St. Lawrence SLA

Olean 7 Cattaraugus CAT

Oneida 7 Madison MAD

Oswego 7 Oswego OSW

Poughkeepsie 6 Dutchess DUT

Salamanca 7 Cattaraugus CAT

Saratoga Springs 6 Saratoga SAR

Troy 7 Rensselaer REN

Yonkers 7 Westchester WES

NOTE: Listings of street addresses for the cities sho n above are available and will befurnished by the Sales Tax Bureau, State Campus, Alban , New York 12227, upon request.

ST-220 New York State and Local Sales Tax Rates by Community (Revised 10/72)

70

THE FOLLOWING LISTING PROVIDES THE ENACTMENT AND EFFECTIVE DATES FOR SALES TAXES SINCE AUGUST 1, 1965.

JURISDICTION % ENACTED EFFECTIVE JURISDICTION % ENACTED EFFECTIVE

New York State2 APRIL 14 1965 AUGUST I 1965 COUNTIES:3 MARCH 29, 1969 APRIL I, 1969 Warren 3 NOVEMBER 27,1967 MARCH I, I96B

4 APRIL2 1971 JUNE 1, 1971 Washinton 3 FEBRUARY 25,1970 SEPTEMBER 1, 1970

COUNTI S:Wayne NOVEMBER 15. 1967 MARCH 1, 1968

Albany2 DECEMBER 1 1 , 1 9 6 7 MARCH 1 , 1966 3 FEBRUARY 2 0,1966 JUNE 1, 1 966

3 DECEMBER 15, 1969 MARCH 1,1970 Westchester 1 DECEMBER 22, 1971 SEPTEMEER 1, 1972

Allegan 2 NOVEMBER 16 1967 MARCH 1, 196B Yates 3 NOVEMBER 20, 1967 MARCH 1,, 1968

Broome 2 JULY 13, 1965 AUGUST 1, 1965'

Cattaraulrus 3 NOVEMBER 21, 1967 MARCH I, I968

Ca u a 3 MARCH 19, 1968 JUNE 1, 1968

Cbautauua 3 Nov 10 1968 SEPTEMBER 1, 1968

*Chemung 2 JULY 12, 1965 AUGUST 1, 1 965

3 DECEMBER 12, 1967 mARCH 1, 1968

Chenono 2 DECEMBER 2, 1968 MARCH 1, 1969

Clinton 3 NOVEMBER 24, 1967 MARCH 1, 1968 CITIES'.Columbia 2 NOVEMBER 29, 1971 MARCH 1, 1972 Amsterdom(MOG) 17 11/2 MARCH 15,1966 MARCH I, 1969

Cortland 3 NOVEMBER 24, 1967 MARCH 1, 1968 'Auburn (CAY) Z2 2 JUNE 24, 1 965 AUGUST I. 1965

*ErieJULY 27, 1965 AUGUST 1, 1965 Batavia (GEN) 13 2 JULY 12, 1965 AUGUST I, 1965

NOVEMBER 30, 1971 MARCH 1, $972 Buffalo (ERI) Z8 MAY 14, 1 970 SEPTEMBER 1, 1970

Essex 3 DECEMBER 4, 1967 MARCH 1, 1966'Canandaigua (ONT)

/71 JULY 13, 1965 AUGUST I, 1965

Franklin2 AUGUST 22, 1967 DECEMBER I, 1967 1Y2 JULY 13. 1 967 MARCH I. 19 68

3 MAY 29, 1968 SEPTEMBER 1; 1968 Elmira CHM) Ini SEPTEMBER 29, 1971 MARCH 1, 1972

Fulton 3 DECEMBER 11. 1967 MARCH I, 1968Fulton (OSW)

Eill DECEMBER 5, 1967 MARCH 1, 196B

Genesee 2 JUNE 25 1965 JANUARY 1, 1966 3 DECEMBER 9, 1971 MARCH 1, 1972 .

Greene 2 MARCH 22, 1968 JUNE 1, 1968Geneva (ONT)

7

I Ju NE 14 1967 SEPTEMBER 1 1967

Hamilton 3 JANUARY 4 I96B JUNE 1, 1968 11/2 JUNE 14, 1967 MARCH 1, 1968

'Jefferson2 JULY 12 1965 AuGUST 1 1965 Glens Fails (WAR) /7 11 JUNE 19 1968 MARCH 1, 1969

3 NOVEMBER 14, 1967 MARCH 1, 1968Hornell (STE)

Z7

1 APRIL 1 1969 JUNE 1 1969

Lewis LI 3 FEBRUARY 2. 1968 JUNE 1, 1968 11/2 JUNE 23, 1 970 MARCH 1, 1971

Livingston 3 NOVEMBER 30, 1967 MARCH 1, 1968 Ithaca (TOM) Z7 JUNE 25, 1969 MARCH 1, 1970

Madison 2 DECEMBER 15, 1967 MARCH I, 1968 Kingston (ULS) 2 DECEMBER 12 1967 MARCH 1 1968

*Monroe 3 JULY 20 1965 AUGUST 1, 1965 Mecbanicville (SAR) 2 JUNE. 10, 1970 SEPTEMBER I, 1970

Montgomery 3 DECEMBER 5, 1967 MARCH 1, $968 Mount Vernon (WES) 1 FEBRUARY 23, 1972 JUNE I, 1972

Nassau2 DECEMBER 9, 1968 MARCH 1, 19 69 .

*New York City 3 JULY 22, 1965 AUGUST 1 7965

*Niagara Falls (NIA)/4

2 JULY 29 1965 AUGUST 1.19653 NOVEMBER 29 1971 MARCH 1, 1972

3 SEPTEMBER 6, 1966 DECEMBER $, 1966Nia ora 3 DECEMBER 3,1968 MARCH 1, 19 69

Onondaga2 SEPTEmBERII, 1967 DECEMBER 1, 1967 Ogdensburg (SLA) Z7 11/2 JUNE 13. 1968 MARCH 1, 1969

3 OCTOBER II, 1968 DECEMBER 1, 1968Olean (CAT) 7- likiApRi L 23 1968 MARCH I 19 69

Oneida (MAD) 1 .11.1/., 1972 DECEMBER 1, 1972dntario

2 MAY 26 1967 SEPTEMBER I, 1967

3 MARCH 12, 1970 JUNE 1, 1970Oswego (05W) NOVEMBER 27 1967 MARCH 1 1968

Orleans2 NOVEMBER 30, 1967 MARCH 1, 1968 3 JANUARY 10, 1972 MARCH 1 1972

3 JUNE 4, 1970 SEPTEMBER 1, 1970 *Plattsburh (CLI) Z.5 2 JULY 15, 1965 AUGUST 1, 1965

Otse.o 2 DECEMBER 7, 1967 MARCH 1, 1968*Poughkeepsie (DUI)

1 JULY 7, 1965 AUGUST 1, 1965'

Rensselaer La JULY 24, 1968 DECEMBER 1, 1966 2 JANUARY 9, 1969 MARCH I', 1969

St. Lawrence IEE NOVEMBER 13, 1967 MARCH 1, 1968 Salamanca (CAT) Z7 11/2 MAY 27 196B MARCH I, 1969

Schuyler 3 NOVEMBER 27, 1967 MARCH 1, 196B 41Saratoga Springs (SAR)

3 JANUARY 24 1968 JUNE 1 1968

Steuben2 NOVEMBER 27, 1967 MARCH 1,196B 1

2

FEBRUARY 3 1969 JUNE 1 1969

NOVEMBER 22, 1971 MARCH], 1972 AUGUST 3, 1970 DECEMBER I, 1970

Suffolk 2 DECEMBER 2; 1968 MARCH 1.1969 *5 racuse (ONO 16 1 JUNE 7, 1965 AUGUST 1, 1965

3 FEBRUARY B 1972 SEPTEMBER 1 1972

Troy (REN) /71 DECEMBER 5, 1968 MARCH 1, 1969

Sullivan 2 DECEMBER 20,1967 MARCH 1, 1968 11/2 JUNE 4, 1970 MARCH 1, 1971Tioga 2 MAY 27. 1968 SEPTEMBER 1,1968

Yonkers (WES)IU DECEMBER 30, 1967 JUNE 1, 1968

Tompkins 3 NOVEMBER 28,1966 MARCH 1, 1967 DECEmBER.10 1968 MARCH I 1969

FEBRUARY 13 1469 JUNE 1 1969 3 JANUARY 3, 1970 MARCH 7, 1970

NOTES: LI

/22314L5

REPEALED EFFECTIVE SEPTEMBER 1, 1968SUSPENDED EFFECTIVE JUNE 1, 1968REPEALED EFFECTIVE JANUARY 1, 19 66REPEALED EFFECTIVE MARCH 1, 1969SUSPENDED EFFECTIVE MARCH I, 19 68

Z6/7

/8

REPEALED EFFECTIVE DECEMBER 1, 1967PRE-EMPTED COUNTY TAX. WITHIN CITY, THE COUNTYTA RATE IS 1

REPEALED EFFECTIVE MARCH 1, 19 72HAD LOCAL TAX PRIOR TO AUGUST I, 1965

ST-220 New York State and Local Soles Tux Rates by Community (Back) (Revised (10/72)

\ 71

Revised Sales Tax Schedule ForGASOLINE

Sold at Retail Service Stations Through Metered Pumps(Effective February 1, 1972)

GASOLINE

SALES TAX

TO DE

COLLECTED

Sales Tax Rate

4% 5% 6% 7%

0.3¢

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1,3

1.4

1.5

1,6

1.7

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3,2

3.3

3.4

3.5

Price per Gallon of Gasoline before adding Sales Tax

19.3 - 21.7¢

21.8 - 24.2

24.3 - 26.7

26.8 - 29.2

29.3 - 31.7

31.8 - 34.2

34.3 - 36.7

36.8 - 39.2

39.3 - 41.7

41.8 - 44.2.

44.3 - 46.7

46.8 - 49.2

49.3 - 51.7

51.8 - 54:2

54.3 - 56.7

56.8 - 59.2

19.0 - 20.9¢

21.0 - 22.9

23.0 - 24.9

25.0 - 26.9

27.0 - 28.9

29.0 - 30.9

31.0 - 32.9

33.0 - 34.,

35.0 - 36.9

37.0 - 38.9

39.0 - 40.9

41.0 - 42.9

43.0 - 44.9

45.0 - 46.9

47.0 - 48.9

49.0 - 50.9

51.0 - 52.9

53.0 - 54.9

55.0 - 56.9

57.0 - 58.9

18.9 - 20.4¢

20.5 - 22.1

22.2 - 23.8

23.9 - 25.4

25.5 - 27.1

27.2 - 28.8

28.9 - 30.4

30.5 - 32.1

32.2 - 33.8

33.9 - 35.4

35.5 - 37.1

37.2 - 38.8

38.9 - 40.4

40.5 - 42.1

42.2 - 43.8

43.9 - 45.4 '-

45.5 - 47.1

47.2 - 48.8

48.9 - 50.4

50.5 52.1

52.2 - 53.8

53.9 - 55.4

55.5 - 57.1

57.2 - 58.8

72

18.8 - 20.1¢

20.2 - 21.5

21.6 -.22.9

23.0 - 24.4

24.5 - 25,8

25.9 - 27.2

27,3 - 28.7

28.8 - 30.1

30.2 - 31.5

31.6 - 32.9

33.0 - 34.4

34.5 - 35.8

35.9 - 37.2

37.3 - 38.7

38.8 - 40.1

40.2 - 41.5

41.6 - 42.9

43.0 - 44.4

44.5 - 45.8

45.9 - 47.2

47.3 - 48.7

48.8 - 50.1

50.2 -51.551.6 - 52.9

53.0 - 54.4

54.5 - 55.8

55.9 - 57.2

57.3 - 58.7

The price per gallonshown includes the 4(t

Federal tax and 8tState gasoline tax,but the sales tax pergallon is based on theprice excluding theState gasoline tax.

Form ST-110 (1/72)

TOTAL TAX .135 39.8TOTAL PRICE PER GAL. ,339

OR

When you buy a dollars worth of gasoline,

about 40c of your dollar goes for taxes.

GASOLINE

fed. excise tax

state excise tax

state sales taxPRICE PER GALLON

.204.04.08

.015

.339

73

State of New York - Department of Tax.tion and Finance - Sales Tax Bureau

7 Percent Sales Tax Schedule for

LEADED GASOLINESold at Retail Service Stations in NEW YORK CITY Through Metered Pumps

(EFfective February 1, 1972)

Sales Taxto be

CollectedPrice per Gallon

(before adding Sales Tax0.3c0.40.50.60.70.8 19.8 - 21.1c0.9 21.2 - 22.51.0 22.6 - 23.91.1 24.0 - 25.41.2 25.5 - 26.81.3 26.9 - 28.21.4 28.3 - 29.71.5 29.8 - 31.11.6 31.2 - 32.51.7 32.6 - 33.91.8 34.0 - 35.41.9 35.5 - 36.82.0 36.9 - 38.22.1 38.3 - 39.72.2 39.8 - 41.12.3 41.2 - 42.5 1

2.4 42.6 - 43.9- -

2.5 44.0 - 45.42.6 45.5 - 46.82.7 46.9 - 48.22.8 48.3 - 49.72.9 49.8 - 51.13.0 51.2 - 52.53.1 52.6 - 53.93.2 54.0 - 55.43.3 55.5 - 56.83.4 56.9 - 58.23.5 58.3 - 59.7

74

The price per gallonshown above includes the44 Federal tax, theState gasoline tax,andthe 1¢ New York Cityleaded gasoline tax, butthe sales tax per gallonis based on the priceexcluding both the Stategasoline tax and theNew York City leadedgasoline tax (totalexcluded - 9¢).

/

Form ST-110.1 (1/72)

UNDERSTANDINGS

problems of this type.The total sellingprice includes theretail price of thearticle plus thesales tax. In termsof percents, the re-tail price of thearticle, excludingthe sales tax, equals100 percent, the base.If the sales tax rateis 7 percent, thetotal price equals107 percent. To findthe sales tax, firstfind 100 percent bydividing the totalprice by 1.07 (107percent). Then, sub-tract the price ofthe article (equals100 percent) from thetotal price. The re-mainder is the amountof the sales tax.


Students should be ableto solve problems suchas the following:

Selling Sales AmountPrice Tax of the(Includ- Rate Salesing Tax) Tax

$ 7:49 7%

1,456.00 4%

1,365.00 5%

1,264.64 4%

677.34 6%

A used car was sold for$2,354, which included a7 percent sales tax.(a) What was the cost ofthe car before the galestax was added? (b)

What was the amount ofthe sales tax?

Solution:

Selling price - 100 percentSales tax = 7 percentTotal price = 107 percent

1) Convert 107 percent to adecimal (1.07)

2) Divide total price by1.07: $2 354

$2,200 (a)

3) $2,354 - 2,200 = $154 =Sales Tax (b)

Students should solvenumerous problems of thistype using sales tax rates

of 4 percent to 7 percent.Every effort should be madeto assure a thorough under-standing of this type ofproblem.

A retail merchant's cashregister tape for 1 dayshowed a total of $235.40

75

Mathematics,"Ninth Edition,South-Western,New Rcchelle, NewYork, 1970. (Seeentries in indexunder "percent"and "percentagerelationships.")

4+

Small merchants maynot have a cashregister built tocompute the salestax and make sep-arate totals forthe amount of thesale and the amountof the tax. Theuse of the methodillustratedis then indicated.

UNDERSTANDINGS

IN 1971, NEW YORK STATEINCREASED THE STATESALES TAX RATE FROM3 PERCENT TO 4 PERCENT.

What was the rate ofincrease in the tax?;requently the answerto this question isgiven as 1 percent.However, the student

.

should understand thatan increase from 3 per-cent to 4 percent ac-tually is an increase

c of 33 1/3 percent:

4% . .043% = .03

.01 (increase)

.01 1x100

= =33 .-%

What appears to be a


which included the 7 per-cent sales tax. What wasthe amount of the salestax owing to the Statefor that 1 day's sales?

Have students calculate A small increasethe rate of increase if in the sales tax

- the sales tax is in-rate can substan-

creased from 4 percent tially increase

to 5 percent the annual amountof sales taxes

- from 5 percent to 6 per- paid by the con-cent sumer.

- from 6 percent to 7 per-cent.

Problem: Assume that aconsumer purchased $3,000worth of goods and sarviccssubject to the sales tax in1967 in a county where thesales tax rate was 5 per-cent and that he purchasedthe saw amount of taxablemerchandise in 1968 whenthe sales tax lite was in-creased to 7 percent.

- How much more sales taxdid he pay in 1968 thanin 1967?

- What was the rate ofincrease in the salestax?

Solution:

small increase in thesales tax rate may infact be a very sub-stantial increase. If,

for example, an in-

(1968) $3,000 x.07(1967) $3,000 x.05

Amount of increase

= $210- $10

$ 60

dividual paid a totalof $300 in sales taxes

60171

240% = rate of,e- r

increaW

76

UNDERSTANDINGS

in 1 year, this rateincrease (assuming thesame dollar value oftaxable purchases)would cost him $100 inadditional taxes.

WHAT IS A REGRESSIVETAX?

A regressive tax isone that takes alarger fraction of'total income from lowincome earners than.at-does from high in-come earners.

IS A SALES TAX A RE-GRESSIVE TAX?

A sales tax is a re-gressive tax inasmuchas the effective ratetaxation varies in-versely with income.

!WHAT IS A PROGRESSIVETAX?

4

A progressiVe tax isone that takesa\pro-gressively larger.fraction of total in-come from high incomeearners than it doesfrom low incomeearners.


Proof: $150x.40

WO.00 amount ofincrease

Even though the sales taxis a regressive tax, manyconsumers would rather payout relatively smallamounts in sales taxesthan be hit with a largeincome tax. Does thismake good sense for thepoor and low middle incomeconsumer?

In a county where thesales tax rate is 4 per-cent, Charles Andersonbought a new Ford whichsold for-$3,000. Guido

Esposito, a citizen ofthe same county,boughtan identical car at the McConnel, C. it,same price. Anderson has "Economics,"a total income of $12,000 Fourth Edition,per year. Esposito earns chapter 9, McGraw-$6,000 per year. Is the Hill, New York,sales tax charged .on these 1939

of purchases a regreSsive tax?Why? Reynolds, L. G.

"Economics,"Solution: Revised. Edition,

chapter 17,Richard D. Irwin,Homewood, Illinois,1966

Samuelson, Paul A.,"Economics,"Eighth Edition,chapter 9, McGraw-Hill, New York,1970

Personal income andtate taxes. levied by:the

(Anderson)

Sales taxTotal income

(Esposito)

120'4000 = 1%

Sales tax .$ 120Total income 6,000

Anderson earns twice as

- Leith and Lumpkin,"Etotcmics:U.S.Ai,"

. chapter 29, McGraw-Hill, New York,1968.

much as Esposito. Yet,his sales tax for this . Warmke, et al.,purchase is only 1 percent "Consumer EcoOf his'total.income whereas nomic PrOblems"


Federal Gov4rnm andsome states e

examples of progres-\sive taxes

. In combinat'on,incomeand sales to es in NewYork tend to e progres-sive.

.f.

WHAT IS A PROPORTIONALTAX?

. A proportional tax isa singlE tax rateapplied to a giventax base.

Esposito's is 2percent.

Discuss: Is the1 income tax asive or a

regressive tax?

. Discussion question:Is the sales tax a

"fair" tax?

Problem: Taxpayer"A" has a grossannual income of$7,000. Taxpayer"B's" gross annualincome is $35,000.If each taxpayerpays a 10 percenttax on his grossannual income,is there anydifference intheir relativbfinancial posi-tions after thetax is paid?(Answer: "8" has$31,500 left over;"A" has $6,300.B's income aftertaxes is stillfive times as muchas A's. Thisillustrates theproportional tax.)

. Is an excise taxproportional, pro-gressive,or re-gressive?

78

chaver 13, South-West2rn, New Rochelle,New York, 1971

. Leith and Lumpkin,"Economics U.S.A.,"chapter 29, McGraw-Hill, New York,1968

. A proportional taxdoes not alter therelative financialpositions of tax-payers at various in-come levels. A pro-gressive tax de-creases income dis-parity. A regressivetax increases, incomedisparity.


"The power to tax ... is not onlythe power to destroy but also thepower to keep alive."

U.S. Supreme Court

WHAT IS AN EXCISE TAX?HOW DOES IT DIFFER FROMA SALES TAX?

. An excise tax is leviedon the manufacture orsale of specific com-modities, such ascigarettes, gasoline,alcohol, etc.

. A sales tax is based onthe retail sellingprice of a broadgroup of goods andservices.

. Excise taxes on selectedcommodities, such ascigarettes, cigars, andmotor fuel are commodityoriented not salesprice oriented.

WHY DO GOVERNMENTS IMPOSEREGRESSIVE SALES TAXESRATHER THAN PROGRESSIVETAXES?

. Consumers, generally,complain less abouttaxes on small pur-chases because theyfrequently amount toonly a small amountper transaction.

. Have students visita local gasolirt,station and find outthe amount of exciseand sales taxes in-cluded in the priceof a gallon ofgasoline.

. Question: Whatpercentage of thetotal price of agallon of giAsolirg3

represents taxes?

(See illustration onpage 73.)

. Have students discussthe psychologicalfactors relating totaxation. Chargingrelatively smallamounts on eachtransaction ratherthan paying out alarge lump sum amountmay be more desirableto some taxpayers.

79

SOURCE

. See "Revised Sales TaxSchedule for Gasoline,"Form ST-110 (1/72) onpage 74 of thispublication.

. Leith and tumpkin,"Economics U.S.A.,"chapter 29, McGraw.Hill, New York,1968

. Warmke, et al.,"Consumer EconomicProblems," chapter13, South-Western, NewRochelle, New York,1971

UNDERSTANDINGS

The tax is easy to col-lect at the point ofpurchase. (A retail

dealer who doesn'tcharge the sales taxto his customers isin violation of thelaw.)

ARE ALL PEOPLE IN AGREE-MENT THAT THE SALES TAXIS AN UNFAIR OR UNDESIR-ABLE TAX?

No. Opinions differ.(See Pechman proposalin Source column.)


Should retail dealers whocollect sales taxes forthe government be reim-bursed for expenses in-curred in collectingsales taxes, i.e., forbookkeeping costs, mak-ing out reports, actingas trustee for the State,etc.?

Run off a copy of thePechman proposal and getstudent :actions. Animportant point to con-sider is whether theamount of any proposedrefund would be sufficientto overcome the criticismsof the sales tax.

Have students consider thefollowing related questions:

- Is the sales tax basedon the consumer'sability to pay?

- Who benefits most fromgovernment expenditures?Is it the rich or thepoor? Or are thebenefits distributedequally among all tax-payers?

- If some benefits aredistributed equally,should all taxpayers

80

SOURCE

"Economi:t Advo-cats Raising LocalTaxes," New YorkTimes, Sunday,August 1, 1971,p.F7. "Joseph A.Pechman, Directoof Economic Studiesof the BrookingsInstitution favorsincreasing therevenue raised atState and locallevels throughsales taxes. Headvocates taxingfood and medicineswhich now are ex-empt in some states.He argues that therich and middleclass get the bene-fit of these ex-emptions as wellas the poor. How-ever, his plan calls

UNDERSTANDINGS

COULD WE ELIMINATE THEMANY FORMS OF TAXATIONWHICH NOW ARE LEVIED.AND ADOPT A SINGLE TAX.TO PROVIDE ALL LEVELSOF' GOVERNMENT WITH THEMONEY THEY NEED?

Theoretically, thismight be possible;but from a practicalpolitical point of

. view, it would beextremely difficultto accomplish.

A combination of taxesseems more practical.Such a system wouldpermit lowel' rates foreach kind of tax andmay reduce tax avoidance

and tax evasion.

SUGGESTED PUPIL AND'TEACHER ACTIVITIES

pay the. same amount oftax for the servicerendered? (Considerhow this would affectrecipients of welfarepayments. .They would

pay taxes equal .to theamounts received.)

This question may beused'to elicit a dis-cussion of the kinds oftaxes levied at the Stateand Federal level and togive students an under-standing of the politicalpressures brought to bearon legislatures to pro-tect the vested-interestsof various groups withinour society. (From thisdiscussion, studentsshould learn that pres-sures are brought by therich as well as the poor,unions as well as-bUsi-nessmen. Doctors,teachers, civil serviceworkers, liquor distrib-

utors, and defense in-dustries all try toinfluence lawmakers tominimize the amount oftaxes they must pay.)

SOURCE

for a flat percapita tax crediton the State incometax paid,or makinga direct refund tolow-income taxpayers who do notowe income taxes."(See also a similarprovision in the.proposed value-,..added tax discussed,

on page 85 of thispublication.)

Samuelson, P., .

"Economics." (See

espedally pp. 154-157.)

See also othereconomics textbooksprevicusly cited.


WHAT IS A "VIABLE" TAXSYSTEM?

Some economists, aswell as lawmakers, v,

recognize that a singletax would not satisfyall groups within oursociety. Their so-lution,therefore, isto use a combinationof taxes a.tax systemthat is.acceptable tomost taxpayers thatwill raise enough taxesto pay for governmentexpenditures.

Can the less affluentmembers of our. societyinfluence legiSlatidn?(Answer: They mightbe very influentialif they exercisedfully their right tovote.)

Question: What aresome major objectionsto the idea of a"viable" t-x system?(One viewpoint: Un-

organized and/ol-

uninformed taxpayersmay not be able tobring sufficientpressure to bear onlawmakers to pre-vent the passage ofunfair or-jneluitabletakes. k Large tax-payers who supply.most of the money forelection campaignsmay use their "powerof the purse" toobtain passage of.legislation to minimizetheir taxes.)

. What method has beenadopted to .providecampaign funds topolitical candidatesso that they wouldnot be obligated tosolicit funds from the,wealthy?

. The rich generallyfavor regressive taxer'and voice strongobjection to progres-sive taxes. Small re-tailers and the poorcomplain about salestaxes.

. Whether or not a taxis acceptable dependsupon "whose ox isbeing gored."

.'No tax is perfect.If you "soak the rich,"the incentive toproduce or to investcapital in businessenterprises may be.destroyed.

If you overtax thepoor, you increase"poverty" conditions,a conditioh which maybe ameliorated onlyby further. taxes.

"Taxes are paid in the sweat of every man that labors."Roosevelt

UNDERSTANDINGS

. Can states afford totax businesses or thewealthy so hcavilythat they relocatein other states?

No. This wouldhave an adverseeffect on.theeconomy of theState.


. What would happen toemployment if alarge number ofmanufacturers movedout of New York State?What other businesseswould suffer if thishappened? (Banks,retailers, whole-salers, etc.)

BACKGROUND INFORMATION

WHY DID NEW YORK STATE IMPOSE A STATEWIDE SALES TAX?

. A viable tax systemmust be one reasonablyacceptable to all seg-ments of our society.

"New York imposed a statewide sales tax because it was already_imposed in 13 local jurisdictions in New York State prior to1965 and state administration of those taxes greatly simplifiedcompliance for vendors and reduced administrative expenses. Also,a great deal of additional state revenue was needed and the salestax was capable of producing that level of revenue, and it waspossible to meet additional local revenue needs through stateadministration of local sales tax. The need for additional local-revenues was due largely to greatly expanded welfare expenditures."(Quoted from a letter by a State tax administrator:)

VALUE-ADDED TAXES

'VAT'

84

UNDERSTANDINGS

WHAT IS A VALUE-ADDED TAX?

A value-added tax("VAT") is a tax addedon ateach stage ofproduction and distribu-tion whenever valueis added to a rawmaterial Or finished.item as it passes fromproducer to consumer.

WHEN PAYING THE "VAT" ONTHE SALE OF A FINISHEDPRODUCT, WOULD THE MANU-FACTURER. BE GIVEN-CREDITFOR VAT PAID ON MATERIALSWHICH HE PURCHASED FROMHIS SUPPLIERS?

. Yes, e.g., if the VATon :a completed carwas $30 and themanufacturer pre-viously paid value-added taxes of $14 percar, .he would receivecredit for the $14. .

(The same would holdtrue of the dealerwho purchased-the carfrom the manufaccurer.)


. Illustrate VAT using . U.S. News and Worldautomobile manufacturing Report, June 21, 1971:as an example. Each "A New Tax' Undersupplier of raw StudyHere's How Itmaterials, semifinished Would Work"goods, or componentparts would charge the . Washington Economist:tax to the prime "The way the Federalmanufacturer. The budget keeps rising,manufacturer would take it's clear that we arecredit for taxes paid going to need to in-his suppliers. The vestigate every possibletax would not build way to raise additionalup (pyramid). revenue."

Prepare copies of theAFL-CIO LegislativeDepartment letter(page 88 ) whichillustrates how avalue-added tax mightwork.

BACKGROUND INFORMATION

The Federal Government has not enacted a value-added tax into law,however, strong opposition to, as well as strong support for, the VATalready has beencexpressed. Before forming opinions students should knowthat there are many variations of VAT. This tax may be regressive. But, if"necessaries" are taxed at lower rates than "luxury" goods or exempted fromVAT, this objectionmay be less valid. If the adoption of VAT would reduceregressive property taxes, it may be acceptable to taxpayers. Final judgmentshould be withheld until Congress or another legislative body considers aspecific VAT law.

NEWS ITEM

New York Taxpayer, September/October 1972

Proposed value-added faxgets cool reception

Voters in three Northeastdistricts have expresseddisapproval of a value-addedtax, according to surveys takenby their Congressmen.

The value-added tax, oftendescribed as a "national salestax," was suggested earlier thisyear as a possible means ofraising revenue to reduce localproperty tax burdens forelementary and secondaryeducation.

Of the nearly 20,000 persons inManhattan's 17th Congressionaldistrict who replied toquestionnaires sent out by NewYork Representative Edward I.Koch, 62 per cent disapproved ofa value-added tax while 38 percent favored the plan.

In a telephone survey of 3,000persons in the district of Penn-sylvania Congressman JosephM. Gaydos, 77 per cent of those.contacted opposed the federaltax, 13.5 per cent favored it, and9.5 per cent said they were un-decided.

The results of a questionnairesent to the constituents of NewJersey Congressman HenryHelstocki' showed that 71 percent disapproved of the VAT, 22per cent favcred the plan, and 7pei cent were undecided.

86

Other PollsAccording to Rep. John J.

Rhodes of Arizona the questionwas also asked in a poll of 7,850persons whose names appear on20 different mailing listsdeveloped by the RepublicanNational Committee.

"The value added tax broughta heavy 68 per cent 'no' votewhile 18.1 per cent voted 'yes'. Asizeable 13.9 per cent 'noresponse' on this question hesaid, was "a probable indicatorof the lack of understanding ofthe value-added tax conceptitself .".

Rep. John F. Seiberling ofOhio gave his constituents achoice of three options. J-Iisquestionnaire asked, "If it isnecessary to raise additionalrevenue to support the basicneeds of this country, whichwould you prefer?"

Eighty-one per cent of therespondents favored "Reform ofthe federal income tax system toeliminate special subsidies suchas the oil depletion allowance":seven per cent favored "anational sales tax (value addedtax on everything you buy)" andfour per cent preferred "anincrease in the federal income .tax rates."

The followinj arti!-.1e appeared in the Albany Times-Union, Sunday,Janua'ry 23, 1972.

Kevin P. Phillips: NIXON TO SEEK

WASHINGTON This spring. President Nix-on is expected to propose to Congress that theUnited States establish a federal value -added taxas a substitute for the present patchwork systemof financing education through local propertytaxes. In plain English, the value-added 1,x(VAT) is a national sales, tax, imposed On .thevalue added to goods .at each stage of produc-tion. VAT revenues would be given to states sothat property taxes could be remitted to the ex-tent now used for schools. It is a good idea acontroversial olie.

The administration contemplates a 2 to 3 percent federal VAT far, far below European ley-.els. by the Way. France, which opt.ed for VAT in1954, has four rates 17.5 per cent for food up to33 per cent for luxuries) : Denmark embracedVAT in.1967 and now has a 15 per cent rate: andso forth. By imitating this spreading VAT sys-tem, the US. would be adopting a tried and trueinternational revenue device, as well asstrengthening the competitiveness of U.S. ex-ports.

NEVERTHELESS. THE howls of U.S. liber-als are as predictable as April showers. Fore-most among their objections is teie one that VATis regressive, and falls most heavily upon poorpeople who spend all their money on VAT-bur-dened consumer purchases. There is enoughmerit in this argument or at least it is wide-spread enough to deserve careful analysis.

First, remember that VAT is being consi-dered in Washington as a substitute for the rhostregressive tax around the local property levy.According to a study of 1968 tax impact by Her-man Miller, chief of the Population Division ofthe U.S. Census Bureau (and a.Democrath.prop-erty taxes not sales taxes hit the poor hard-est. In the under $2,000-a-year income group; forexample, Miller found property taxes accountingfor 16.2 per cent of annual income, while salestaxes consumed just 6.6. per cent. Moving up anotch to the $2,000-to-$4,000-a-year bracket, prop-erty taxes gobbled up 7.5 per cent as opposed toonly 4.9 per cent for sales taxes. Miller's data in-dicated that'middle-income groups pay about thesame percentage of their annual take 3-4 percent in property taxes as in sales levies:

True, a sales tax like VAT is still regressivewhen applied a r!.03s-the-board. But the WhiteHouse plans to exempt the poor. President Nixonand his advisers will ask that persons below acertain income level get credits against federalincome tax or if they pay no tax cash re-bates, Many poor people, especially homeownerswill profit by any switchover to VAT. At thiswriting, the White House does not plan,on differ-ent rates for foodstuffs and luxuries, a furtherway of introducing progressivity. 'However, thiscould change.

FEDERAL VALUE-ADDED TAXLiberals who hope to milk the regressivity ar-

gument may want to query the leftwing welfare-state governments of Denmark and Sweden. Af-

' ter careful. surveys, both nations have not onlyadopted single :fvel VATs but increased theirrates tto mr cent and 17.65 per cent) !

VAT G, anents drag out a great red herringthe idea; that we can afford higher incometaxes because we as a nation, tax ourselvesmuch less than other industrial nations. Atbest, this is a half-truth. Our indirect taxes (in-cluding sales taxes) do impose a lesser burdenthan those of Europe. However, our direct taxes(including income taxes) take a higher slice ofnational output than in most European nations.The newest data from the Organization for Eco-nomic Cooperation and Developm, t show thatonly the welfare states of Scanainavia bear ahigher direct tax load than the U.S. (computedas a percentage of total national output).

This point is vitally important. High corpo-rate income taxes hinder the accumulation ofcapital for new factories, technology. equipment,and jobs. White House aides say that the needfor increased capital accumulation and job crea-tion is the number one reason for President.Nix-on's embrace of VAT in lieu of added incometaxes. Corporations in nations like Germany andJapan, whei.e direct taxes are less of a burden,have an edge on U.S. competitors.

European use of VAT also makes U.S. adop-tion. vital to our own exporters. VAT nations tm-pate sales taxes on imports, while rebating thetaxes paid on goods sent out of the country. To-day U.S. exporters receive no rebate on propertytaxes allocable to exported goads,. nor wouldthey receive pro rated rebates of any corporatetax hike. But if we go to VAT, then ezporterswill receive VAT rebates on exported goods thatwill make U.S. products more competitive in themarketplace.

These, then, are the pluses of VAT: Equtableschool financing; a fairer tax burden than thatimposed by the :*Operty tax; and facilitation ofU.S. exports. Other clear benefits will accrue tofarmers, who are now especially burdened byproperty taxes, to retired persons, and to home-owners whose children use parochial schools.One dtawback of VAT is that it tends to be infla-tionary, but overall, the domestic and interna-tional. balance sheet is highly favorable.

EM!

AFL -CIO

LEGISLATIVE

DEPARTMENT

THE `VALUE-ADDEn' TAX

A NATIONAL SALES TAX31MiMME51111

1972 FACT SHEET NO. 2

The Administration again is floating trial balloonsadvocating a "new" taxa so-called value-addedtax.

This tax is a national retail sales tax mas.querad-ing under a new name.

It could completely destroy the thin margin ofequity that remains in the federal tax structure..

This tax has been, and still is, the perennial'favorite of those who feel the federal corporate andindividual income-tax system overburdens wealthyindividuaisand;13`usinesses and treads too lightly ginthose whose incomes are* modest and have'ia,. ifany, escape hatches.

.

In 1966 the Committee for Economic Develop-ment, a business-supported research organization, -brought the first flurry of attention to the tax.According to the CED:s,1966 recommendations, avalue-added tax shenlirbe substituted for a partof the corporate incomeAtx.

In 1968 the value-added tax enjoyed anotherround of attention. This time it was offered as ameans to improve our balance-of-payments posi-tion. The excuse.was that Europeans enjoy a com-petitive advantage since, under the rules of GATT,governments can reimburse businesses for directtaxes (those on consumption) on goods for exportbut indirect taxes (income taxes) cannot be re-bated.

And, ever since the Nixon Administration tookoffice, the value-added tax has continually main-tained a position of prominence among a variedarray of tax proposals and tax trial balloonspro-posals which in the main were geared to shiftingever more of the nation's tax burden away frombusiness and the wealthy and onto the backs ofmoderate- and middle-income individuals.

Ironically, right upon t1.e heels of the huge Ad-

ministration-sponsored business-tax giveawayS of= the 1971 Revenue. Act- the value-added tax is once.again being touted. This time the ploy is to exploitcurrent taxpayer dissatisfaction with the propertytax.

If enacted, the effect would be to pijtthe federalgovernment firmly in the sales-tax business andheap a still larger share of the tax burden on theshoulders. of low- and middle-income wage earners.

What the Tax is Not: Value added is not a newway cf taxingit is merely a different method ofc011ecting sales tax. The tax burden falls entirely.on the on-isomer, and all the regressive attributesof sales taxes apply to the value-added tax. Accord-ing to Stanley Surrey,:former Assistant Secretaryof the Treasury, such' taxes ". . . are in face salestaxes in their structural design and economic ef-fects."

How It Works: The sales "taxes familiar to mostAmericans are applied at onetime, at the last (re-

..; tail) stage of the production and distribution.eycle.Under tlie::value-added system, a piece of the tax

is collected-Fit-each stage and, through a"complicatedprocess Of rebates;-credits and price adjustments, it

-is bucked forward to each business involved in the' production and distribution system. Since the finalconsumer reaivesno rebate and has no one to passthe tax on to, he bears the full burdenthe sameas he would under a retail sales tax.

In principle, the value 'added by each busine3sinvolved in the production and distribution of anitem equals the item's retail price. To determinethe value-added of a particular firm, the idea is toseparate the value of that firm's input to the prod-uct from the value of the inputs of its suppliers.

To figure its tax a firm would apply the tax rateto its total tales in order to find the "preliminary"tax due. From this amount the firm would subtractthe taxes that were included in the price it paid onits purchases of raw materials, semifinished prod-ucts, or component parts.' This amount is sub-tracted from the preliminary tax due, and the re-mainder is the amount the firm owes the govern-ment. The full_ eax (the amount paid to the gov-ernment and the amount paid to its suppliers) isadded to the selling price of the firm's goods. Theresult is that the firm has paid a piece of the taxdirectly to the government, reimbursed its suppliersfor the taxes they paid, and passed the entireamount on to the purchasers of its products. Thefirm has no tax burden.

This process continues from firm to firm untilthe product reaches the consumer. The consumerreceives no rebate, cannot pass the tax on to any-one else, and therefore bears the full burden ofthe tax.

88

A 5 percent value-added tax on an item retailing for $200 would be collected as follows:PreliminaryTax Due

Selling Price (5% ofExcl. Incl. Value SellingTax Tax Added Price)

Less TaxesPaid on

Purchases

Amt.Recd.

By Govt.

Amt.Passedon to Tax

Next Stage Burden

Mfr. $100 $105.00 $100 $ 5.00 $ 5.00 $ 5.00 $0W'saler 125 131.25 25 6.25 $5.00 1.25 6.25 0Retailer 200 210.00 75 10.00 6.25 3.75 10.00 0

$10.00

Result: The consumer pays $210 for the item;the government has received its $10 in three piecesfrom the manufacturer, the wholesaler and theretailer; but the entire burden of the tax has fallenon the consumer.

If in the above example of the $200 item theretailer were an exporter, the government wouldnot receive its $10. The exporter would not payany tax to the government on that item and itwould receive a rebate for the $6.25 in taxes itpaid on the purchases of the materials that wentinto the exported item. Thus if a value-added taxwere adopted and rebates given on exported items,the result would be that no tax would be paid byAmerican producers or foreign purchasers ofAmerican goods. In other words, the value-addedmechanism is sort of a back-door type currencydevaluation that assures that the burden is limitedsolely to U.S. consumers.

Currently the federal budget and the economyare in trouble and the Administration is gropingfor new revenue sources. At the same time, the Ad-ministration is working within the framework ofa Philosophy that even more of the nation's taxburden should be shifted toward middle- and mcd-erate-income workers and consumers and awayfrom corporations. The value-added tax fits thisframework.

The AFL-CIO Position: Additional consumer

taxes can erode the equity of the nation's tax struc-ture as seriously as additional loopholes.

Consumer taxes exact their burden from low-and moderate-income groups who must spend allor most of their income. Wealthy individuals whocan save and invest shelter much of their incomefrom the tax. We see no justification to add to thetax burdens of those with modest incomes or putthe federal government in the sales-tax business.

What is more, after the recent business-tax cut-ting contailed in the Revenue Act of 1971, thevalue-added tax, even if veiled as a means to reducethe property tax, is in actuality a foot in the doorto a further erosion of the share of taxes paid bybusinesses and a further shift in the tax burdenfrom businesses and their owners to individualworkers and consumers.

It is for these reasons that the AFL-CIO at itsrecent Convention unanimously urged "a continuingvigil to assure the rejection of all tax devices andgimmicks that run counter to the goals of tax jus-tice. These include proposals such as the value-added tax, which is simply a national sales taxmasquerading under a new name, or the additionof new, so-called business tax-incentive schemes.Such measures are haphazard, costly and wastefulapproaches to meeting national goals. They rewardthose who need it least, at the expense of those whoneed it most."

THE. COST OF A VALUE-ADDED TAX

A 5 percent value-added tax would cost the average American family of four about$200 per year.Such a tax would be equivalent to reducing the recently-raised income tax personalexemption from $750 down to $500 per persona family loss of $1,000 in personalexemptions.

89


IS THE VALUE-ADDED TAXESSENTIALLY A SALES TAXPAID BY CONSUMERS?

Yes, that is how itworks out. It is away of taxing, by in-stallments, whatpeople spend for goodsand services.The tax is collectedon the value of salesat every level ofproduction and dis-tribution. But eachpurchaser along theline recovers thetax he has paid, bydeducting that amountfrom the tax he isrequired to pay onhis own sales. Sothe tax is passedalong from one business-man to the next. Mostof the burden finallywinds up on the ultimateconsumerthough in ahighly competitive lineof business some of thetax might be absorbedbefore the final sale.

IS THIS BURDEN ON THECONSUMER A MAJOR OBJECTIONTO VAT?

..It is a disadvantagemost often cited bycritics, including rep-resentatives of consumergroups and labor or-ganizations. They saythat a value-added taxis "regressive" that is,it falls hardest onlow-income familiesthat may be least ableto afford the burden.

In discussing thisquestion, studentsshould understand thatVAT essentially is anational sales tax.However, if competi-tion gets rough, thevendor might absorbthe tax. The vendorof merchandise orservices is requiredby law to add on salestaxes to the retailprice.

Discuss: Shouldpersons in the low-income brackets begiven an allowance forVAT taxes in figuringtheir Federal incometaxes?

90

U.S. News and WorldReport, pp. 27, 28,June 21, 1971

U.S. News and WorldReport, pp. 27, 28,June 21, 1971

SUGGESTED. PUPIL AND

UNDERSTANDINGS TEACHER ACTIVITIES SOURCE

COULD ESSENTIAL ITEMS BEEXEMPTED FROM THE VAT?

. Yes. Tax planners saysuch important cost-of-living items as foodbought for serving athome, and drugs andmedical supplies mightbe free from the tax.

In practice, mostcountries with a value-added tax put a lowerrate on certain keyconsumer goods to pre-vent too heavy aburden from fallingon low-income people.In West. Germany, forexample, the standardVAT rate is 11 per-cent, but the rate ongoods and servicesdefined as "essential"is 5.5 percent.

WHAT OTHER OBJECTIONSHAVE BEEN MADE TO VAT?

. Critics say it wouldgenerate a "blizzardof paper work." Sellerswould have to collecttaxes from buyers.andkeep detailed recordsof tax payments tosuppliers.

. Prices might sometimesrise more than the taxwarranted.

. Federal Governmentwould invade a revenuesource traditionallyreserved for State andlocal governments.

Refer to the Pechman . U.S. News and Worldarticle on page 79of this publication.Would Pechman favorexempting certainitems from the value-added tax? Or does

he suggest anothermethod?

. Prepare a transparencylisting advantages anddisadvantages of VATand use this as abasis for studentdiscussion.

-After discussing thepros and cons, askstudents to VOTE onthe question, ShouldCongress pass a VATtax law?

91

Report, June 21, 1971


WHAT ADVANTAGES ARECLAIMED FOR VAT?

The tax is capableof raising huge sumsof money.

VAT eliminates Manyopportunities for taxevasion.

. A company must paythe VAT whether or notit makes a profit.

U.S. exports may be-come more competitivebecause exporters wouldreceive .a VAT rebate:,

on goods exported.

MAY A STATE IMPOSE AVALUE-ADDED TAX?

. Yes. Some statesalready are lookinginto the matter.

. Question: What is . U.S. News and Worldthe difference between Report, June 21, 1971tax evasion and taxavoidance?

. A corporation sells$10 million worth ofgoods but its costsand expenses amount to$11 million. Doesthis company pay incometaxes? Would it paytaxes if a value-addedtax were enacted intolaw?

. Question: If prop6rty'taxes were reduced,would you favor aVAT tax?

92


COULD A VALUE-ADDED TAXREPLACE THE FEDERALINCOME TAX?

If the rates werehigh enough, itcould. But, ifVAT is enacted, itprobably wouldsupplement presenttax collectionsrather than replacethem.

. Question: If aVAT were adopted bythe Federal Governmentin place of the incometax, would we have amore progressive or amore regressive taxsystem?

The Wall Street Journal carried anSeptember 21, 1972,issue. Part of this

Although the Nixon administration is shyingfrom talk about any sort of new tax during theheat of the presidential campaign, key officialshave hinted a preference for a very simple,single-rate value added tax, or VAT. In tryingto make a VAT politically palatable, however,the administration might well have to compro-mise in Congress by offering more favorablerates or exemptions for some items.

There's just a glimmer of softening of lib-eral opposition should the VAT be proposed ina "progressive" form, designed to hit the richmore than the poor. If there were higher per-centage rates on bigger, more powerful cars, aVAT would "require larger contributions fromthose who make greater demands on the na-tion's resources," suggests New Republic Mag-azine writer Melville J. Ulmer. "Interesting,interesting," murmurs a Nixon official.

Similarly, a higher VAT on higher-pricedproducts might appeal to liberal lawmakerswho complain that the wealthy manage toavoid the progressive federal income tax,through such devices as the tax exemption forinterest from municipal bonds. It is the ulti-mate consumer who bears the burden of aVAT, experts generally agree; each businesscollects the tax from its customers and gets re-bates from the government for the VAT it haspaid to supplien,

93

SOURCE

article on value-addedarticle appears below:

taxes in the

WThe hardest decision is \,,liether to have aVAT or not, and the answer remains uncertaineven in a second Nixon term. A VAT is not "atthe top of the list" of probable ways to pay forlocal property tax relief, but "I am not rulingout anything," top White House domestic aideJohn Ehrlichman said recently. Democraticpresidential nominee George McGovern is deadset against a VAT, and Democratic economicadviser Arthur Okun flatly predicts that "re-gardless of the outcome of the election, no Con-gress will pass a VAT."A Matter of Time?

Still, European fiscal officials think it isonly a matter of time before the U.S. gets instep. Before long, the U.S. will be the onlyWestern power lacking a VAT (Britain is com-mitted to launch one on Jan. 1 as it enters theCommon Market), and Japan is expressing in-terest in the idea. An American VAT with ratescomparable, to the European ones would makefor even-handed competitiveness in worldtrade, continental officials argue.

If the U.S. does overcome its reluctance tothe VAT, that will hardly be the end of the ago-nizing; the question of rates will be almost astouchy. "From the technical point of view ofadministering the tax, a flat rate is the best,"says K. Millenaar, a top tax official of theNetherlands finance ministry in The Hague."But from the standpoint of fiscal righteous-ness, of fair play, you have to have differentrates, to make a distinction between necessarygoods and luxury goods."

REAL PROPERTY TAXES

94

BACKGROUND MATERIAL

Homeowners, businessmen, farmers, and landlords often art heard tocomplain about the high taxes they pay on the real property they own. Yet,

many property owners really are not too familiar with the costs of pro-viding municipal services or the costs of operating a school. Neither dothey know exactly where the money comes from to pay local government andschool costs.

How many taxpayers, for example, are familiar with the contributionwhich sales and use taxes make toward, paying the costs of local government;or, how much is received in State aid to help pay for the operation oflocal schools ?. Money received from these sources and Federal revenue-sharing playsan important part in financing municipal and, school programs.

Some people grumble about waste in government. Yet, they rarely, ifever, attend a public meeting to voice their opinions or to communicatetheir concerns to public or school officials.

Today, a substantial pOrtion of the money we earn is paid in taxes. It

is just as important to develop an'understanding of taxes as it is toexercise good judgment in the way we spend the money which is left aftertaxes are paid.

Real property taxes provide a major source of funds to pay for localgovernment and school costs. Certainly taxpayers ought to take an activeinterest in their local government and school affairs so that they may knowwhether or not their tax money is being spent wisely.

High school students may not, at first, appear to be particularlyconcerned with a subject like real property taxes. This may be due, in part,to the fact that many teachers have neglected to approach this subject inany but a superficial manner. Yet, if instructors would concentrate onpresenting materials that are available locally from municipal agenciesand school districts, they would find a wealth of materials that maystimulate student interest and participation. Also, recent court decisionsat the state and Federal levels pertaining to the constitutionality ofpresent methods of financing school costs should elicit stimulating studentdiscussions.

Some of the suggested objectives which students may be expected toachieve from studying the materials presented in this unit are tolearn the meaning of such terms as

tax rateequalization ratetax lienbudgetamount to be raised by taxes, etc.

(1) property (6)

(2) real property (7)

(3) personal property (8)

(4) full valuation (9)

(5) assessed valuation (10)

95

In addition, the student will. know how increases in taxes may affect rents

know that senior citizens nrw are afforded some relief from realproperty taxes

know some of the advantages and disadvantages of real property taxesas a means of providing money to pay local government and schoolcosts

become familiar with the burdens which real property taxes impose oncertain taxpayers

know which levels of government are financed by real property taxesand which are not

be able to calculate the tax rate when the amount to be raised bytaxes and the assessed valuation are known

know how to use an equalization rate to estimate taxes or todetermine if the assessed valuation is reasonable

develop some understanding of the deficiencies of our tax systemin providing equal educational opportunities

know how to use the grievance procedure provided by law

know-about the losses which may be incurred by a property owner forfailure to make timely payment of his taxes.


WHAT IS THE MEANINGOF THE TERM "PROPERTY"?

. Property is somethingowned.

WHAT ARE THE MAIN TYPESOF PROPERTY?

. Real and personal

. Students may respondby defining realestate as property.They should learn that .

'real estate is onlyone form of property,i.e., real property.An individual alsomay own personalproperty.

. Webster's CollegiateDictionary

Property is "anyvaluable right orinterest protected bylaw."

. Ask students to con-sider the school as"property" and decidewhich items are realproperty and whichpersonal. (Thebuilding, land, heat-ing equipment,andother fixtures per-manently applied are

96

. Lavine, A. Lincoln,"Manual on CommercialLaw," or any high schoolor college businesslaw textbook.

. Land and things con-nected to the land arereal property. This

includes minerals,water, trees, etc.


IS PERSONAL PROPERTYTAXED IN NEW YORK?

. No.

. Some states levy.a taxon personal as wellas real property.

WHAT IS THE MEANING OFTHE TERM "TITLE"?

. Title denotes owner-ship.

DOES THE PERSON WHO RENTSPROPERTY HAVE TITLE TO THEPROPERTY HE RENTS?

. No. The tenant merelyis in possession of theproperty.

real. Movable prop-erty, such as desks,chairs, maps, chalk,books, etc.,ispersonal.

. Question: SupposeNew York State levieda tax of 2 percenton personal property.Would this be aproportional, pro-gressive, or regressivetax?

(Answer: Probablyproportional)

. Assign a student tolook up the meaningof the word "title"in a business law text-book and explain itto the class.

SOURCE

Refer to sections ofthis publication onbudgeting and salestax for an explana-tion of proportional,progressive, and re-gressive taxes.

. Business law textbooks

Question: If Andrews .

(tenant) rents a housefrom Smith (landlord),who has title to theproperty?

97

Even though a persondoes not own the houseor apartment in whichhe lives, he is en-titled to the "quietand peaceful enjoyment"of the property whilehe legally is inpossession.


WHO RESPONSIBLE FORPAYING THE REAL PROPERTYTAX?

. Whoever has titlethe owner.

WHAT HAPPENS IF THEOWNER PAYS HIS TAXESAFTER THEY BECOME DUE?

. He must pay a latepenalty in additionto the tax.

WHAT HAPPENS IF THEOWNER FAILS TO PAYHIS TAXES?

. The government mayimpose a tax lien tosecure payment oftaxes.

. In the above situa-tion, who is re-sponsible for payingthe real propertytax, Andrews orSmith?(Answer: Smith)

. The tenant legallyis responsible forpaying the rent; theowner legally isresponsible for pay-ing the taxes.

. Sampson owns a housewhich he rents to Valle.Sampson pays his taxes90 days after theyare due. What happens?(Answer: Sampson mustpay a penalty in addi-tion to the taxes.)

. Ask students whoseparents own a houseto find out whatpenalty they mustpay for late paymentof taxes.

Cities, counties,and villages advertiseproperty on which taxeshave not been paid.Obtain a copy of sucha list for studentexamination.

98

Penalties are imposedfor late payment oftaxes to "encourage"property owners topay on time.

Lavine, A. Lincoln,"Manual on CommercialLaw," Prentice-Hall

UNDERSTANDINGS

. If the tax remains un-paid, the governmentmay sell the propertyto collect the taxes.

. The purchaser offoreclosed propertyreceives a validtax title.

WHAT BRANCHES OFGOVERNMENT LEVY REALPROPERTY TAXES?

. Cities, towns,villages, and schoolslevy taxes on realproperty.

. ihe State of New Yorkand the Federal Govern-ment do not.


. Invite a localgovernment officialto talk to the classabout tax sales andthe importance ofpaying real propertytaxes on time.

SOURCE

A tax lien is a legaldevice by which thegovernment may controlproperty until pastdue taxes are paid orsatisfied through saleof the property.

. Ask a student to find .

out what is meant byforeclosure and havehim explain it to theclass. The law teacheror an attorney willassist if needed.

. Ask students to findthe tax rates chargedby various units oftheir local govern-ment(s) and the schooldistrict. Use thisinformation to cal-culate real propertytaxes.

. Question: What are thesources of State andFederal revenue?"

99

If the government putsa lien on property,the owner no longerhas a clear title tohis property. Beforehe can convey a cleartitle, the lien mustbe satisfied.

. Sainer, A. L., "TheSubstantive Law ofNew York," CentralBook Company, 850Central Avenue,Brooklyn, New. York

. Foreclosure may resultfrom (1) failure topay taxes or (2)failure to pay theinterest or principalon a mortgage whendue.

. Local government clerksand school businessofficials can supplycopies of budgets.

. In the 1800's and early1900's, the Statetaxed real property.Now, this source ofrevenue largely isreserved to localgovernments and schooldistricts, althoughsome states still taxproperty, both realand personal.


HOW DO LOCAL GOVERN-MENTS USE THE MONEYTHEY COLLECT IN TAXES?

. Local real property.taxes provide thegovernment with moneyto pay employees'salaries, to purchasesupplies and equip-ment, to pay the in-terest and/or principalon borrowed money,and to carry on theother business of thecity, town, or village.

WHAT FACTORS INFLUENCE THEAMOUNT OF MONEY TO BERAISED. BY LOCAL REALPROPERTY TAXES?

. Kind and quality ofservices provided

. Amount of State aidto local governments

. Amount of State aidto school districts

. Other income received,such as local sales tax,collected by the Stateand returned tolocalities

. Prepare a list ofgoods and servicestypically purchasedby local govern-ments.

Question: Da all

governmental ex-penditures for goodsand serviczs con-tribute to the well-being of these whopay taxes?(Discuss such ques-tions as: Do tax-payers who have nochildren benefitfrom paying schooltaxes on realproperty?What benefit doesa city taxpayerreceive whose taxmoney is used tobuild a highway ina rural area? etc.)

. Without taxes we wouldhave to foregoservices such aspolice and fire protection, municipallyfurnished water,sewers, streetlighting, garbagecollection, andeducation.

. Ask students to ex-plain why taxes anreal property arehigher in some com-munities than others.(Discuss: (1) kindand quality ofservices, (2) dif-ferences in propertyvalues, (3) pur-chasing efficiency,(4) facilities provided,(5) corruption, dis-honesty, etc.)

100

Local government andschool budgets

The amount to beraised by taxes isdetermined by thevariety of servicesand facilities pro-vided by the govern-ment.


HOW ARE TAX RATESDETERMINED ON REALPROPERTY?

. A tax assessorestablishes anassessed value foreach parcel of realproperty in thecommunity.

. To find the taxrate, divide thetotal assessed valueinto "the amount tobe raised by taxes."(See case problembelow.)

. Question: How doesthe State supervisethe financial ad-ministration of localgovernments and schooldistricts? (Divi-sion of Audit andControl examinesrecords to assurethat, unds are spentlegally and thataccurate financialrecords are kept.)

. Question: What partdoes the tax assessorplay in determiningthe tax_ rate?

Question: How is theamount to be raisedby taxes determined?(Subtract "incomefrom outside sources"from anticipatedexpenditures. Thedifference is theamount to be raisedby taxes.)

A REAL LIVE PROBLEM

Income from sales

tax and Stateaid decreases theamount to be raisedby taxes at the locallevel.

. The administration oflocal government andschool financialaffairs is subject toreview by the Statecomptroller's office,Division of Audit andControl.

. The tax assessor playsan important role indetermining the taxrate and the amountof taxes an owner ofreal property willhave to pay.

The following information was obtained from the 1972-73 budget of theVillage of Altamont, Albany County, New York:

(1) Estimated expenditures $193,534.09(2) Estimated income other than real property taxes $148,311.09(3) Assessed value of real property $1,143,033.00

Question: What was the tax rate per $1,000 of assessed valuation?

(See next page for answer)

101

Answer to case problem

Estimated Expenditures $193,534.09Less: Income from sources other than real property taxes 148,311.09Amount to be raised by taxes $ 45,223.00

Finding tax'rate for each $1 of assessed valuation

Amount to -aised by taxes $ 45,223Total arse .'valuation of real property 1,143,033

039564 =

Tax rate per each $1of assessed valuation

Finding the tax rate for each $1,000 of assessed valuation

.039564 x 1,000= $39.564 = tax rate per thousand of assessed valuation

PROOF: Total Assessed Valuationx TAX RATE per thousand = Amount to be

1,000raised by taxes 7

$1,143,0331,000

1143.033 x39.564 = $45,223.00

How To Use the Tax Rate

PROBLEM: The assessed valuation on a residence owned by Leonard andVirginia Katz is $3,000. If they live in the Village of Altamont,how much would they have to pay the Village in real propertytaxes for 1972-73?

SOLUTION: $3,0003 x $39.564 = 118.69

$170-0-17

NOTE: In addition to village taxes, they also would have to pay.county,town, and school district taxes on their house.

UNDERSTANDINGS

IS THE ASSESSED VALUEOF REAL PROPERTY EQUALTO THE FULL VALUE?

. Generally, no.

,SUGGESTED PUPIL ANDTEACHER ACTIVITIES

. Problem: The totalassessed value ofreal property in atown, as determinedby the tax asSessor,is $3 million. Thetotal full value ofreal property, as

102

SOURCE

. Write to State of NewYork, Board ofEqualization andAssessment, 155Washington Avenue,Albany, N.Y. 12210,

for a copy of"Principles and

UNDERSTANDINGS

. The assessed valuefrequently is only afraction of the fullvalue.

. Full value is marketvalue (the price thatwould be paid by awilling buyer to awilling seller).

WHAT IS AN EQUALIZATIONRATE?

. The relationshipbetween the full valueand the assessed value(expressed asa_per-cent) is the equaliza-tion rate.

IF YOU KNOW THE EQUALIZA-TION RATE AND THE ASSESSEDVALUE, HOW DO YOUFIND THEFULL VALUE?

. The assessed valuedivided by the equal-ization rate equalsthe full value.

IF YOU KNOW THE RECENTMARKET PRICE OF A PIECEOF PROPERTY, HOW CANYOU ESTIMATE THE COSTOF PROPERTY TAXES?

. Easy formula:(MV x ER x TR = Est. Tax)

Where:(MV = market value)(ER = equalization rate)(TR = tax rate)(EST. = Estimated amountTAX of real property

taxes)


determined by theState Board ofEqualization andAssessment, is$12 million. Whatpercent of the totalfull value is theassessed value?(Answer: 25 percentThis is called theequalization rate.)

Problem: The fullvalue of a piece ofreal property is$25,000. The equal-ization rate is 20percent. What is theapproximate assessedvalue?(Answer: $5,000 )

. Problem: The assessedvalue is $5,000. Theequaliiation rate is20 percent. What isthe full value?

(Answer: $5,000.20 = $25,000 )

Example: Sam andRandy Jackson are in-terested in buying anew house. They findone they like whichis offered for $22,000.Approximately whatwill their total annual

103

SOURCE

Procedures Used inEstablishing StateEqualization Rates."

. The equalization rate"indicates the percent-age of full value atwhich the assessor ina locality is assessing,on the average."

. Since equalizationrates are determined'on a townwide basis andinvolve averaging andother factors, thisexercise may not berealistic in any actualsituation.

"Principles andProcedures Used inEstablishing StateEqualization Rates,"pp. 4-5

. Knowing how to estimateproperty taxes isimportant to theprospective purchaserof a home.

SUGGESTED PUPIL ANDUNDERSTANDINGS TEACHER AC1IVITIES SOURCE

HOW CAN THE EQUALIZATIONRATE BE USED TO JUDGETHE RELATIVE FAIRNESSOF THE ASSESSED VALUEOF TWO PIECES OFPROPERTY?

real property taxes be . If monthly paymentsif the equalization to the mortgagerrate is 30 percent, the (generally a bank ortown tax is $49 per savings and loanthousand, and the school association) do nottax is $68 per include propertythousand. taxes, the prospective(Answer: $772.20) - .purchaser must add

this amount to his. Question: 'What would anticipated expensesthe monthly real for financing theproperty tax amount to purchase of a house.for Sam and Randy?"(Answer: $64.35)

. Knowing the equaliza-tion and tax rates willhelp one to judge therelative fairness ofassessments.

Illustration: LawyerBrown purchased acompletely remodeled,old colonial housefor $50,000. Hisneighbor, Sid Eckert,paid $28,000 forhis new ranch.Brown's colonial'isassessed at $8,000.Eckert's ranch isassessed at $5,600.Are these fair assess-ments?(Note: The equaliza-tion rate in thiscommunity is 20percent.)

. Solution: Brown'shouse seems to beunder"assessed. It

should be a.,.,sessed at

about $10,000($50,000 x .20 =$10,000). Eckert's.

house is correctlyassessed ($28,000 x.20 = $5,600).

104

. Knowing how to useequalization ratescan be useful tocitizens in-judgingwhether the assessedval;4a of theirproperty is faircompared to otherproperties in thesame community.


WHAT ARE SOME OTHERPURPOSES FOR WHICHEQUALIZATION RATES AREUSED?

. Distribution of Stateaid to localities in-cluding State aid foreducation and highways

. Determining limitationson local taxing andborrowing power

. Equalization of railroadproperty assessmentceilings

WHAT IS THE GRIEVANCEPROCEDURE?

. Citizens may use thegrievance procedureprovided by New Yorklaw to complain aboutthe amount for whichtheir property isassessed.

. Problem: A schooldistrict, outside acity, has a totalaverage assessedvaluation of $2,500,000.The debt limit set by .

State law is 10 per-cent of the full valua-tion. What is theamount of the debtlimit if the equaliza- .

tion rate is 20percent?(Answer:

Assessed Full

Valuation ValuationEqualization

Rate

$2,500,000$12,500,000

.20(Full Value)

$12,500,000 x .10 =

$1,250,000 (Debt Limit)

. Appoint a committee ofstudents to visit theoffice of localassessors to obtaininformation regardinggrievance proceduresand report their find-ings in written ororal form to the class.

SOURCE

"Principles and Pro-cedures Used in Estab-lishing State Equaliza-tion. Rates," p. 4

McKinney's ConsolidatedLaws of New York, Book33, Local Finance Law,Sections 104 and 137

Local school businecs-officials can supply -

data concerning debt_limits, Outstanding:,Abonds, etc.

. Refer to-the realproperty tax law whichmay be found in the(1) ConsolidatedLaw Service or (2)McKinney's ConsolidatedLaws of New York forinformation regardinggrievance procedures.

105

The following are excerpts from an article which appeared in theTimes-Union, Albany, New York, February 11, 1973.

Regents SeekingTo Close Aid Gap

Fothe 1973.74 school year,the Regents have proposed acomprehensive plan to re-form the state aid formulafor public elementary andsecondary education. Theoverall package is aimed ateliminating many of the ine-quities in the present aid for-mula and closing the expend-iture gap between the wealth-ier and poorer school dis-tricts within the state.

Basically. the plan involvesan increase in the state aidoperating ceiling. special as-sistance for disadvantagedarld handicapped studentsand vocational education pro-grams, and a limit on theamount by which local dis-tricts can increase theirspending. matches stateaid to educational need moredirectly than ever before,

IN ARRIVING AT THEIRrecommendations, the Re-gents carefully consideredthe findings of the Fleisch-mann Commission and recentcourt cases which have foundthat current spending pat-terns result in grossly une-qual expenditures per child.The number of dollars availa-ble to support a child's edu-cation should not be depend-ent upon the,.choice his par-ents made in regard to resi-dence, the Wegents maintain.

report onEP-galling

Rather. they contend, supportof educational costs should bebased largely upon education-al.need.

The Regents cite the largedisparity in operating 'ex-penditures among school dis-tricts in the state and saythis is largely based on a diS-Wet's. wealth. The range ofoperating expenditures in1970-71 was from a low of$700 per pupil to more than$2,200 per pupil.

106

FURTHERMORE. theyshow that tax rates on fullvalue among the state'sschool districts ranged from$9.03 per thousand to $38:27per thousand in 1970-71. Thelow rate was in a wealthydistrict with $103,288 of fullvaluation behind each child.The high rate was in a poordistrict with $7,636 of full val-uation behind each child, Thedifference in locally raisedrevenue per child was $685.

"Wealthy districts receivelegs state aid than poor dis-trictS. but the tax rates in thewealthy districts are lessthan the tax rates in the poor,districts." the Regents pointout. -Expressed in 'a differ-ent way. the wealthy districtscan provide a quality pro-gram for a lower rate thanthe poor districts."

The table below appeared in the Albany Knickerbocker-News, Union-Staron November 14, 1972.

With the help of their instructors, students can make interesting com-parisons from this table, such as the percentage of funds provided.by Stateaid, the range of expenditures per pupil, average expenditures per pupil,etc. (Try to make calculating machines. available for students to use.)

Wealth of Metrolood

School Districts

Per Pupil Per PupilExpenditures State Aid

0==0=11011111

PropertyTax

Property Value RevenuePer PupilPer Pupil

Albany (c TY) 9,792.24 $424.56 $54,672.72 $802.27

Bethlehem 9,600.89 $449.76 $43,419.07 $915.18

Cohoes $1,106.31 $584.68 $23,232.64 $460.36

East Greenbush $1,430.04 $671.41 $21,305.91 $436.36

Guiiderland 9,736.49 $737.97 /0,092.04 $459.31

Mohonasen 9,428.02 $837.98 94,734.66 $340.12

Niskayuna $1,488.35 $565.70 $30,136.83 $685.17

North Colonie $1,476.00 $591.48 $29,241.22 $627.42

Rensselaer $2,259.50 $597.02 $24,559.83 $309.60

Schenectady $1,466.71 $636.95 $24,687.68 $530.09

Shenendehowa $2,620.43 $847.29 $13,051.20 $228.16

Scotia-Glenville $1,220.45 $753.22 $17,708.53 $427.91

South Colonie 9,566.36 $695.33 $22,748.47 $472.83

Troy 9,254.06 $607.45 99,683.85 $447.26

Watervliet $1,144.85 $562.36 $29,473.68 $342.38

Note: This cnart eXcludes_expenditures by private and parochial schools.

107


DO REAL PROPERTY TAXESPROVIDE AN EQUAL.EDUCA-TIONAL OPPORTUNITY FORALL STUDENTS?

. Recent State courtdecisions say, "No."

. But on March 21, 1973,the U.S. SupremeCourt held that Statelaws are not void justbecause their benefitsfall unevenly.

. The New York StateBoard of Regents recom-mends closing the gapbetween rich and poorschool districts inper pupil school ex-penditures.

--7The percentage of totalschool costs paid byState aid has decreased.

New York State has usedan equalization formulafor distributing Stateaid to school districts.The Regents now arerecommending updatingthis formula.

The value of realproperty per pupilvaries enormously incommunities through-out New York Stateand many otherstates. Owners ofreal property incommunities with lowproperty valuationsper pupil mustassume a greaterburden for providingequal educationalopportunities thanthose in richerdistricts. Is thisan equitable system .

of taxation?(Answer: Recentcourt decisions havestated that this is inviolation of Statelaw.)

SOURCE

. To provide equal educa-tional opportunitiesto rich and poor stu-dents, per pupil ex-penditures should beapproximately equal.

. New York Times,March 22, 1973, "Court,5-4, Backs Schools inTexas on Property Tax"

. Per pupil expendituresvary enormously fromone community toanother.

. Question: ShouldState aid be appor-tioned as a fixeddollar amount perstudent or shouldlarger amounts per'student be distributed .

to districts withless wealth?(Answer: To provide"equal educationalopportunity" wit4outoverburdening tax-payers in poor dis-tricts, it isnecessary to apportionmore State aid per stu-dent in the poorerdistricts.

108'

To correct this im-balance, the Statewould have to providemore State aid topoorer districts.

In 1968-69 State aid,provided 48.3 percentof school costs. In

1971-72, State aidprovided only 42.8percent of school'costs.' Property taxeshave had to be in-creased to make upthe difference.

Johns, R. L., "TheComing Revolution inSchool Finance," PhiDelta Kappan, 9/72

UNDERSTANDINGS

ARE SENIOR CITIZENSELIGIBLE FOR TAX RELIEFON THEIR HOMES?

Many communities haveenacted legislation,as permitted by Statelaw, to decrease realproperty taxes forhomeowners over age 65.


. Ask students to findout if senior citizensin their community areeligible for a re-duction in the realproperty taxes ontheir homes. If theyare, have them findout the specific pro-visions of the locallaw.

Question: Maysenior citizens applyfor a reduction ontheir school taxesas well as localmunicipal real propertytaxes?

.109

SOURCE

Contact local city,town, or villageofficials to find thelocal law on thismatter.

FEDERAL

ANDNEW YORK STATE

INCOME TAXES

110

THE ALTAMONT ENTERPRISEand ALBANY COUNTY POST

A CRUSHING BURDEN

rRI DAY, JLJNC 2, 1972

ki, 0530I 1cky% suRIDEN l'\\

4, fig IkOUSVOLD.I..

1 ' fOla FEDERAL,,,-k1

III STATE AND ? \

1" ''' 1,0CAL C4V15 .tltin

i 1972 -1...,,, ,

TAX LOAD REACHES NEW HIGHBedraggled American taxpayers are having another record thrUst

upon them.

Each household will average $4,530 in state, local and tederaltaxes for fiscal 1972, according to the Tax Foundation. That's up $200from 1971 and is, once again, an alltime high.

This year's hike is due to boosts in social security taxes and stateand local taxes, which will more than devour some relief we all enjoyin our federal income tax load, the Tax Foundation said.

In the past ten years estimated total taxes have increased 77.5 per-cent per household. Total current tax payments at all levels (Federal,state, and local) amount to $295 billion 6.5 percent above fiscal 1971.

The spending side of the picture is even more startling. TheFoundation predicts total spending to rise by 12 percent from $363billion in 1971 to $405 billion in 1972. This means, of course, deficitsat all levels of government and, probably, higher taxes in the futureto help pay the interest on money governments must borrow to paytheir bills.

This accelerating tax burden is very nearly out-of-hand. It isestimated that 71 percent of the federal budget is "uncontrollable"that it involves spending already committed by previous Congresses.If Congress won't call a halt, others will have to by refusing to sendthe "big spenders" back for another spending spree.

111

Federal and New York State Income Taxes

Eventually almost every student will prepare income tax returns. Manystudents already have jobs and pay social security taxes. If they continueto live or work in New York State, they will file both Federal and New YorkState income tax returns.

Millions of wage earners pay someone else to prepare their returns.This may be convenient or desirable. But, with a few weeks of instruction,a student can easily learn to prepare a simple tax return. He should alsolearn how to avoid paying more taxes than are required by the tax law.

Fortunately, the Internal Revenue Service has developed all of theteaching materials needed for an excellent program in Teaching Taxes. Forcopies of these materials, teachers should contact the nearest office of theUnited States Treasury Department, Internal Revenue Service. There is nocharge for the Teaching Taxes program.

Instructions and forms for preparing New York State income tax returnsalso are available at local banks and post offices. They are also obtainableby writing directly to Income Tax Bureau,The State Campus, Albany, N.Y.12227. Specify which forms you need by form number.

Specific instructions for preparing income tax returns have beenomitted from this publication to avoid duplication with the materialsmentioned above. However, suggested objectives for teaching this unit areincluded as well as materials pertaining to income taxes as they relate tothe overall tax system.

As a result of studying the materials referred to in this unit,students should

. be able to prepare simple Federal and New York State individualincome tax returns

. learn how to obtain a refund for overpayment of taxes

. learn when an amended return should be filed

. know how the Federal and State governments use the tax money whichthey collect (See "Budgeting" in this publication.)

. know what deductions from adjusted gross income may be taken bytaxpayers who itemize deductions

. know when it is desirable to itemize deductions rather than usethe standard deduction

. know when it is desirable for married taxpayers to file a jointreturn

. know how to handle excess FICA payments on their tax returns

. know when progressive income and FICA taxes first were intro-duced into our tax system and the reasons for each

know what is meant by a tax surcharge

112

. realize the importance of doublechecking returns to avoidarithmetical errors, omissions, etc.

. be familiar with the procedures used by the government to detecttax evasion

. know the penalties for cheating on a tax return

know what records a taxpayer should keep


IS THE UNITED STATES THEONLY COUNTRY THAT LEVIESAN INCOME TAX?

. No.

IS NEW YORK STATE THEONLY STATE THAT LEVIESAN INCOME TAX?

. No.

. Ask a committee ofstudents to prepare areport on topics suchas (1) Countriesthat levy incometaxes, (2) Thehistory of incometaxes in the UnitedStates, etc.

. Question: Is anindividual's totalincome used as thebase for figuringhis income tax?(Answer: No. He

should subtracteither a standarddeduction oritemized deductionsas well as personalexemption(s) tofind his taxableincome.)

113

. EncyclopediaBritannica, 1967edition', Vol. 12,p. 18

. Canada, Great Britain,Italy, France,Australia,and othershave imposed incometaxes. Recently,several Europeancountries have leviedvalue-added taxes(VAT).

. EncyclopediaBritannica, Vol. 12,p. 21

BY 1972, all but sixof the states hadimposed some form ofpersonal income tax.In 10 states, in-

cluding New York, itproduced more than 20percent of totalstate taxes.


IS NEW YORK CITY THEONLY CITY THAT HASLEVIED A TAX ON INCOMES?

. No.

ARE FEDERAL AND NEWYORK STATE INDIVIDUALINCOME TAXES REGRESSIVE,PROPORTIONAL, ORPROGRESSIVE?

. Both are progressive. . Review meaning ofregressive, propor-tional, and pro-gressive tax.

. Refer to Federal andNew York State taxrate schedules onthe next page. Dup-

licate copies anddistribute tostudents. Have themanswer the testyourself questions.

114

EncyclopediaBritannica

. Cities in Alabama,Delaware, Kentucky,Maryland, Michigan,Missouri, Ohio, andPennsylvania also havelevied income taxes.

. Federal Income TaxForms, Tax RateSchedules, X, Y, and

. New York State IncomeTax Forms IT-201-P,Tax Rate Schedule

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290

TEST YOURSELF QUESTIONS

1. Find the amount of Federal income tax for married taxpayers filing ajoint return (Schedu1 V) whose taxable income (adjusted gross incomeless deductions and 'exemptions) was:

Answers

A. $4,000 A. ($ 620)

B. 8,000 B. ($ 1,380)

C. 16,000 C. ($ 3,260)

2. Why are these taxes characterized as progressive?(Answer: B's taxable income is 100 percent more than A's; but, B's

taxes are more than 100 percent greater-than A's, i.e.,

$1380 620 = $760 or.62 -0

760:- 1.23 = 123 percent greater.

The amount of taxes paid by B increases at a greater ratethan his taxable income. The progressive characteristic ofFederal income tax rates also can be illustrated by comparing-C with B and C with A.)

3. Find the amount of income tax for a single taxpayer whose taxable incomewas $16,000.(Answer: $3,830)

4. The married taxpayers in question no. 1 above and the single taxpayerin question no. 3 had the same amount of taxable income. How much moredid the single taxpayer pay than the married taxpayer?(Answer: $3,830 -3,260 = $570)

NEW YORK STATE TAX RATE SCHEDULE

Tax Rate Schedule*If amount on line.9, page 1 is:

over but not over enter on line 10, page 1$ 0 $1,000 2% of amount on line 9

1,000 3,000 $20 plus 3% of excess over $1,0003,000 5,000 80 plus 4% " " 3,000

5,000 7,000 160 plus 5% " " 5,000

7,000 9;000 260 plus 6% " IP It7,000

9,000 11,000 380 plus 7% " PI " 9,000

11,000 13,000 520 plus 8% " PI " 11,000

13,000 15,000 680 plus 9% " " 13,000

15,000 17,000 860 plus 10% " " 15,000

17,000 19,000 1,060 plus 11°/0 " " 17,000

19,000 21,000 1,280 plus 12% " " 19,000

21,000 23,000 1,520 plus 13% " PI " 21,000

23,000 25,000 1,780 plus 14% " " 23,000

25,000 2,060 plus 15% " " 25,000

*Note: These figures do not include the sur-charge currently in effect.

116

Note: No iax is payable iffiling status checked is:

Single and line 5, page 1is $2,500 or less.

Married (filing joint re--turn), head-of household orsurviving spouse and line5, page 1 is $5,000 or less.

Married (filing separate re-turn) and the combined totalof line 5, page 1 and

spouse's separate total NewYork income is $5,000 orless. If you qualify enterspouse's total New Yorkincome here $

If no tax is payable as ex-plained above, disregard theTax Rate Schedule and enter"none" on line 10, page 1.

TEST YOURSELF PROBLEMS

1. Using the New York State Tax Schedule, findfollowing taxpayers:

the income tax due for the

New York Taxable Income Amount of Income Tax

A. $ 5,000 A. $ (160) + 21/2 percent*

B. 6,000 B. (210) + 21/2 percent*

C. 16,500 C. (1,010) + 21/2 percent*

D. 28,951 P. (2,652.65) + 21/2 percent*

* New York State Surcharge

UNDERSTANDINGS

DO ALL TAXPAYERS WITHBIG INCOMES PAY HIGHPROGRESSIVE INCOME TAXES?


. No. Reproduce the article .

from the Joint EconomicCommittee report. Dis-

tribute to students.Discuss: How can sometaxpayers avoid hightaxes by buying tax-free municipal bondsor by investing in oilor other mineral pro-ducing properties?

Some observers feel that the present tax law is excessively progres-sive in impact and have advanced proposals for easing the presentburden on middle or upper income taxpayers. It is contended thatsuch tax reduction is necessary to increase the overall rate of savingand capital formation out of any given level of total income. Thepotential improvement in real living standards of low-income indi-ivduals resulting from more rapid economic growth, it is maintained,substantially exceeds that from any-practicable redistribution of taxburdens.87

Others voice the opinion that the progression in the tax rate structureis more apparent than real. They point out that in 1959, among the1,002 returns listing adjusted gross incomes of $500,000 or more,there were 20 returns on which there was no tax liability and 73returns with effective tax rates of under 30 percent. Furthermore,adjusted gross income excludes one-half of capital gains. Measuringtax against adjusted gross income augmented by the excluded portionof capital gains, the median effective tax rate on these returns wasonly 28 percent." Moreover, since these returns were selected onthe basis of adjusted gross income, they do not include the returns ofsome persons with large incomes from tax-exempt interest or withincome from mineral production that was offset by depletion deduc-tions. On the basis of these considerations, it is argued, the degreeof actual progression in the tax system should be strengthened, notreduced.

THE DEGREE OFPROGRESSION

(Joint Economic Committee,,U.S. Congress,

1964)

117

SOURCE

Joint Economic Com-mittee, Congress ofthe United States,"The Federal TaxSystem: Facts andProblems," 1964 U.S.

Government PrintingOffice, Washington,D.C. 20402, $1


WHAT PENALTIES MAY BEIMPOSED FOR FAILURE TOPAY INCOME TAXES?

. Civil or criminalpenalties may beimposed for (1)tendering bad checksto Internal RevenueService, (2) failureto file a return,(3) filing fraudulentreturns, etc.

WHAT RECORDS MUST ATAXPAYER KEEP? *.

. This varies. Indi-

viduals whose incomeis derived solelyfrom wages need not .

keep as complicateda set of records asbusiness firms.

. Discuss: What isthe difference betweena civil penalty and acriminal penalty?

. Ask an ambitiousstudent to consultthe "Federal Tax Courseand Guide" and preparea resume of thesections dealing withpenalties.

SOURCE

"Federal Tax Course andGuide," Prentice-Hall,Section 37, p. 201, andSection 38, p. 406

Bailey, F. Lee andRothblatt, Henry B.,"Defending Business andWhite Collar Crimes,"--The Lawyers Co-operative PublishingCompany, Rochester,New York

. Diogenes, "How Not ToCheat on Your IncomeTax," Esquire, January1973

. Discuss: What would . "Appendix C - Personalyou consider an Record Forms," Theaccurate record for Money Tree, Signet(1) an individual whose Books, 1972sole income is derivedfrom wages, (2) a . "Federal Tax Course anddoctor, (3) a business Guide," Prentice -Hall,firm, etc. Section 35, 016(Answer: Individualsshould retain a record . Farmers and employeesof their earnings, of all kinds must keepreceipts for contribu- reasonably accuratetions, taxes paid, records which willmedical expenses, etc.; enable a correcta doqtar who is a determination of theirgeneral practitioner taxable income.

should maintain arecord of patientscharges, expenses, etc.;a business firm shouldkeep a complete setof 'books and.supportingdocuments.)

118

SUMMARY

"Death and taxes are inevitable," yet little attention has been paidin the schools to an understanding of one of the universal obligationsand privileges of citizens. All of us are familiar with taxes. We arereminded of their presence in a thousand ways in the addition of a salestax amount to the base price of almost every commodity and service we buy,in the newspaper reports of the deliberations of'State and Federal rep-resentatives as they seek to find ways to finance governmental services, inthe grumbling of property owners as they view the annual increases inproperty taxes, and in the struggles of schools to find ways to finance theever-increasing costs of education.

Too many citizens view the tax situation with patient resignation;they expect that taxes will constantly rise, yet they make little attempteither to understand the services their tax money provides, or to influencethe tax deliberations of their elected representatives.

Probably few indeed view the payment of taxes as a privilege. In the

words of an unknown poet:-"I bought a share of civilization today,I paid my taxes, I'm happy to say."

Yet, in essence,whether begrudgingly or happily, each of us daily doesbuy a share of civilization. Our taxes go to provide schools, colleges,homes for children and the aged, protection of the environment, healthservices, social services, and all the other amenities of life.

Typically, however, we become agitated and involved only when someaspect of taxation touches us directly. Let there be an increase in schoolor town taxes, a higher levy on gasoline or cigarettes, a bigger bite' takenout of our paychecks for income tax purposes and we respond with painedoutcry.

Similarly few of us are much involved in prison care until there is ariot; in transcontinental highways until we want to take a trip, or inbetter health care for the aged until one near and dear to us is involved.Fortunately,our elected representatives can act as our conscience to seethat societal needs are reasonably well taken care of.

It is hoped that a study of this module will help students to betterunderstand both the complexities of taxation and the reasons why budgetingmust precede any taxation plan.

Perhaps a study of taxation is particularly timely since great eventsare currently transpiring which will have tax implications for futuregenerations.

On the one hand is the struggle between the Congress and the Presidentreflected in the Nixon budget for 1974. The issues are sharp. ThePresident has proposed a $268 billion budget and promises to withhold fundsfor projects which would lead to an overexpenditure of this amount.Congress, with variant views of priorities, feels that the President has

119

overstepped his authority in withholding funds appropriated by Congress.Last year's budget called for outlays of $246 billion, but Congress voted on$260 billion worth of spending. Thus,the struggle between the Executive,tohold spending close to budgeted mounts, and Congress' insistence that thefull amount of their appropriations be spent, highlights the problem of allconsumers how do we reconcile the fact that our desires exceed ourresources. Or, why can't budget allocations be changed to provide more fundsfor certain items and less for others?

A second dramatic confrontation is building up regarding the financingof education. As indicated in this module, the ability of districts tofinance education differs markedly. In some districts the wealth behind astudent for tax purposes may be many times that of less fortunate districts.There is a growing clamor to finance education through the broader taxresources of each State, rather than relying on the property tax base of theindividual district.

Thus the matter of taxation is not an abstract but a concrete, tangibleproblem for each citizen to understand and on which he should record hisopinion. It is hoped that this module will open some windows on this problem.

120

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