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Taxation

1. How much money do you want to be earning (per year) when you are 30? 2. What percentage of your income do you think you have to pay to the government in taxes?. Taxation. “In this world nothing can be said to be certain , except death and taxes .” Benjamin Franklin. In reality….

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Taxation

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  1. 1. How much money do you want to be earning (per year) when you are 30? 2. What percentage of your income do you think you have to pay to the government in taxes?

  2. Taxation “In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

  3. In reality… • US Federal Tax Rates: (only 3 % of Americans make over $250,000) • Add 10 -15 % more depending on which state you work in

  4. Net Income • Gross income: How much you earn • Net income: how much you keep • Net income = gross income - gross income*tax rate • For example: Mr. Jones made $37,500 last year. • Net income = $37,500 - $37,500(.25) • Net income = $37,500 - $9,375 = $28,125

  5. World Tax Rates http://www.greenbacktaxservices.com/blog/countrys-tax-rate-compare-around-world-infographic/

  6. What are “Good Taxes”? • According to Adam Smith: • Simple to understand • Don’t provide negative incentives • Avoid loopholes • IRS manual – 2,500,000 pages • (4 X size of the Bible)

  7. Income Tax in USA • IRS – tax collection agency in USA • Taxes are deducted throughout year • Every citizen must file every year by: • If you paid more during the year then you need to: you get a refund • If you paid less during the year then you need to: you must pay the difference

  8. Taxes: For Example • For example: Mr. Jones made $37,500 last year. • Net income = $37,500 - $37,500(.25) • Net income = $37,500 - $9,375 = $28,125 • If Mr. Jones paid $10,375 in taxes in 2013, what happens after he files?

  9. ProgressiveTax Income Tax % changes based on income The more you make, the higher your tax. Common in USA & EU

  10. RegressiveTax • Smaller % taken the higher your income • Sales tax • For example: 5% tax, $25,000/year w/$10,000 consumption pays: 10,000 X .05 = $500, or 2% of total income • $50,000/year w/$15,000 consumption pays: 15,000 X .05 = $750, or 1.5% of total income

  11. Proportional Tax • Property Tax • Tax on something you own (car, house, boat, etc.) • For example: $100,000 home • 5% property tax rate • 100,000 X .05 = $5,000 property tax

  12. ProportionalIncome Tax ? • Tax on a household income • % stays the same • “flat tax” • For example: 5% tax, $25,000/year or $100,000/year

  13. Other Taxes • Excise Tax: tax on the sale or production of a good. Often used to discourage use of the item, called a “Luxury” or “Sin” tax. Ex. Cigarettes, Alcohol, Gas, Telephone • Estate Tax: Tax on the total value of money and property of a person who has died. Only taken on estates over $1.5 million. Opponents labeled it as the “Death Tax” because they believe it is unfair to wealthy, successful people.

  14. Other Taxes (cont.) • Gift Tax: Tax on money or property given as gift over $10,000 per year. • Import Taxes: known as tariffs, taxes on goods entering the U.S. Used to raise price of foreign goods and help American companies.

  15. Entitlement Programs • Def. Social welfare programs that people are “entitled to” if they meet certain requirements. Congress must fund these programs. • Entitlementsare very expensive because Congresscannot control how many people receive the benefits. • Ex. Social Security (#1spending), Medicare, Medicaid, Food Stamps, etc.

  16. Discretionary Spending • Def. Spending category where government can choose how to fund. • Ex. Defense (#1 discretionary spending), education, research, student loans, technology, law enforcement, national parks and monuments, the environment, housing, transportation, disaster aid, foreign aid, farm subsidies, etc.

  17. Surplus/Deficits • Balanced Budget: when the government collects the same in revenue (taxes) as it spends. • Budget Surplus: When the government takes in more revenue than it spends. • Budget Deficit: When the government spends more than it takes in.

  18. Does the US have a good tax system?

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