Role of Government. "In this world nothing can be said to be certain, except death and taxes.“...
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Transcript of Role of Government. "In this world nothing can be said to be certain, except death and taxes.“...
Role of Government
"In this world nothing can be said to be certain, except death and taxes.“• Benjamin Franklin, in a letter to Jean-Baptiste
Leroy, 1789, which was re-printed in The Works of Benjamin Franklin, 1817
"Death, taxes and childbirth! There's never any convenient time for any of them."• Margaret Mitchell's line from her book Gone With
the Wind, 1936
List at least five goods and services that are provided to us and our communities by the federal, state, and/or local government.• National defense• Highways• Education• Law enforcement• Public parks
No one likes taxes, but most people agree that they are necessary to at least some degree
“No matter what functions we end up assigning to government, to do anything at all government must first raise revenues. The primary vehicles that the government uses to finance itself is taxation.” - your book, page 377.
Tax – a required payment to a local, state, or national government
Article I, Section 8 gives Congress the power to tax, stating that the purpose of a tax is for “common defense and general welfare.”
Therefore, there are limits…
Limits on Congress’ power to tax:• Cannot bring in money for individual
interests• Must be the same in every state (federal
taxes, that is)• Cannot tax church services (freedom of
religion, separation of church and state)• Cannot tax exports (only imports)
Tax base – the measure or value upon which the tax is levied (what we are taxed on)
What kinds of things are taxed?• Income • Property• Sales (goods and services)• Corporate profits • Capital gains – profit made in the stock
market
Tax rate structure – the percentage of a tax base that must be paid in taxes• 25 % of income, for example
Taxes bases can either be stock measures or flow measures
Stock – a value that is measured or estimated at a point in time • Ex: Your parents pay a property tax if they own
their home. Their tax amount is based on the current assessed value of their home.
Flow – a value that is continuous• Ex: Income is a flow (people are paid monthly,
with taxes taken out every month)• Ex: Retail sales take place continuously (retail
sales tax takes a portion of that flow)
Depending on the burden as a proportion of income, a tax can be proportional, progressive, or regressive.
The key is NOT to consider the percentage of the tax itself, but instead to consider the proportion of a person’s income that the tax will affect.
Progressive – a tax that exacts a higher proportion of income from higher-income households than from lower-income households • the burden (as a % of income) increases as
income increases • The U.S. income tax is a progressive tax
because you pay a higher percentage of your income as you make more money
Proportional tax – a tax whose burden is the same proportion of income for all households
Our wage tax of 1% is proportional, because no matter how much you make, you pay 1% of your income to your municipality.
Obviously, we all pay different amounts, but what makes it proportional is the fact that we pay the same % of our incomes!
Regressive – A tax that exacts a higher proportion of income from lower-income families than from higher-income families• Excise taxes (taxes on specific goods like
gasoline or telephone calls)• Retail sales tax – everyone in Allegheny
County pays 7%• This may seem proportional but it really
affects lower-income families more
Average tax rate – the total amount of tax you pay divided by your total income• Let’s say I paid a total of $10,000 in taxes
this year, while I made $50,000• My average tax rate would be
$10,000/50,000 = .20 (or 20% of my income)
Marginal tax rate – the tax rate you pay on any additional income you earn• If I chaperoned 10 events at school and
earned an additional $500 and paid $200 in taxes on this income, then my marginal tax rate would be $200/$500 = .4 (or 40% of the additional income)
To figure out the total amount of taxes you owe, you have to first add up your total income.
From your total income, you are allowed to subtract what we call exemptions and deductions. • For 2014, the personal exemption is $3950• For 2014, the standard deduction is $6200 for
a single person and $12,400 for a married couple For you (a dependent) it is only $1000
Simplicity – simple and easily understood, people can keep records, prepare forms, and pay predictably
Efficiency – government can collect easily and taxpayers can pay easily
Certainty – it’s clear to taxpayer when tax is due, how much is due, and how to pay
Equity – no one bears too much or too little of the burden
Benefits-received – theory that says the people who pay a tax should receive the benefit of that tax• gasoline tax used to build and maintain
highways (only paid by people who use these)
Ability-to-pay - the belief that those who have the ability to pay should pay• progressive income tax – those who are more
able to pay will bear a greater burden
Individual Income Taxes are the federal government’s main source of revenue.• True!
You pay your income taxes at the end of the year in one lump sum.• False• “Pay-As-You-Earn” – we pay this throughout
the year instead of one large lump sum
Your employer holds onto some money each paycheck that they will give the government as your federal income taxes.• True
Tax Withholding – our employers take payments out of our pay (withhold) before we receive it•Based on an estimate of how much we will
owe for the year
If your employer holds onto money, you do not have to file income taxes with the government.• If you want to see if they owe anything back
to you, then this is absolutely false! That’s because…
•You should use a form to file income taxes
•Declare your income to the government and figure out taxable income
What you owe in taxes is based on ALL the money that you make• False!•Taxable income – person’s gross (total)
income minus exemptions and deductions
•Personal exemptions – set amounts you subtract from gross income for yourself, your spouse, and any dependents
You can actually deduct some of your expenditures from your income before paying taxes on it. • True!•Deductions – variable amounts you can
subtract, or deduct, from gross income Interest on a mortgage, donations to charity,
some medical expenses, state and local payments
You may actually owe more or less than what your employer has withheld throughout the year.• True• Depending on your exemptions and
deductions, then it is very possible that you will get money back.
• Unfortunately, it is also possible that you may owe money.
• What your employer withholds is only based on their estimate of what you will owe.
Corporate income taxes make up a small portion of federal revenues.• This is actually true.• Why do you think this is?
Finding taxable income is very easy for businesses.• False. They usually have to hire
accountants to figure this out. It is VERY COMPLICATED.
Large, multimillion dollar companies pay a higher percentage in income taxes than smaller companies.• True.• The income tax structure for companies is
also progressive.
FICA• “Who is this FICA, and what is he doing with
all of my money??!!!!!” ~Rachel from “Friends” when she got her first paycheck
• FICA is a payroll tax imposed by the federal government on both employees and employers to fund Social Security and Medicare - federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age,
survivors, and disability insurance (OASDI)
Medicare –• Medicare provides hospital insurance
benefits. Unemployment –
• FUTA (Federal Unemployment Tax)• Employees do not pay this tax; Employers
do.• It goes to fund unemployment
compensation for people who are currently out of work and looking for a job.
Excise Taxes• Excise taxes are taxes paid when purchases
are made on a specific good, such as gasoline
• Excise taxes are often included in the price of the product.
• There are also excise taxes on activities, such as on highway usage by trucks.
Estate Taxes• The estate tax is a tax on your right to
transfer property at your death. • It consists of an accounting of everything
you own or have certain interests in at the date of death.
• Typically, this only affects the wealthiest 2% of Americans because you have to have an estate worth more than $1,000,000 to be taxed. (Actually Congress just changed this to 5.25 million!)
Gift Taxes• The gift tax is a tax on the transfer of
property by one individual to another while receiving nothing, or less than full value, in return.
• The tax applies whether the donor intends the transfer to be a gift or not.
• 2014: $14,000
State and Local Taxes and Spending
Operating budget – pays for day-to-day expenses •Salaries of state employees, supplies,
maintenance of facilities Capital budget – pays for major
capital (investment) spending•New buildings, bridges, etc.
49 states require balanced budgets (revenues = spending)•Easier to balance state budgets
Education•Public universities (Clarion, Edinboro,
Slippery Rock)•Some $ to local governments for public
K-12 schools•National average: $11,665 per student
per year http://www.nationaljournal.com/thenextamerica/
education/analysis-how-much-states-spend-on-their-kids-really-does-matter-20121016
Public Safety•State police along highways and in crime
labs •Corrections systems
Highways and transportation (along with federal and local $$$)•Resurface roads, repair bridges •Waterways, airports
Public Welfare •Public hospitals and clinics•Regulators inspect water supplies • Unemployment compensation
Arts and Recreation•State forests and parks (Moraine State
Park, North Park)•Museums, music and art programs
Administration •Governor’s office, legislature, and court
system
Limits• Can’t tax imports or exports or goods sent between
states • Can’t tax federal property (military bases)• Tax exempt: nonprofits, religious groups, and charities
Sales tax • Taxes on goods or services• Different between states: usually between 3-8%• Some categories of products are exempt (differs between
states: Minnesota, Massachusetts, New Jersey, New York Pennsylvania, Rhode Island and Vermont have exempted some or all clothing purchases.)Read more: What States Have No Sales Tax on Clothing? | eHow.com http://www.ehow.com/list_7300742_states-sales-tax-clothing_.html#ixzz2QXdRdXC4
• http://www.salestaxinstitute.com/resources/rates
State income taxes Corporate income tax
•Usually keep relatively low to attract new businesses to the state
Other taxes•Licensing fees • Inheritance taxes (in addition to estate
tax by federal govt.)
Forms of Local Government •Townships, counties, school districts
Jobs of Local Government• Public school systems• Law enforcement• Fire protection• Public facilities (library, airport, hospitals)• Parks and other facilities (beaches, pools, zoos)• Public health• Public transportation• Elections• Record keeping• Social services
Property Taxes•Millage – fixed dollar amount per $1,000
of the assessed value of a property Main source of funding for public schools http://www.alleghenycounty.us/treasure/millsd.asp
Other Local Taxes•Sales, excise, and income taxes •Taxes for visitors on hotel rooms, rental
cars, airports, and movie or theater tickets
•City payroll taxes – for workers who live in suburbs but work in city