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Ch. 14: Taxes and Government Spending

Ch. 14: Taxes and Government Spending. Section 1: What Are Taxes?. “Nothing in life is certain but death and taxes.” - Benjamin Franklin. Taxes/Revenue. A tax is a required payment to the local, state, or national government.

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Ch. 14: Taxes and Government Spending

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  1. Ch. 14: Taxes and Government Spending

  2. Section 1: What Are Taxes? • “Nothing in life is certain but death and taxes.” -Benjamin Franklin

  3. Taxes/Revenue • A tax is a required payment to the local, state, or national government. • Income raised by the government from taxes is called revenue.

  4. Taxes and the Constitution • The Constitution grants that Congress may tax: “To lay and collect taxes, duties, imposts and excises, to pay the debts, and provide for the common defense and general welfare of the United States.”

  5. Types of Collection: Income Tax • Individual income tax: tax on a person’s annual earnings.

  6. Types of Collection: Sales Tax • Sales tax is a tax on the dollar value of a good or service being purchased.

  7. Types of Collection: Property Tax • Property tax is a tax on the value of a property.

  8. Types of Collection: Corporate Income Tax • Corporate income tax is a tax on the earnings of corporations.

  9. Types of Collection: Capital Gains • Long-Term Capital Gains Taxes are paid on earnings from investments held for more than 1 year (less than 1 year is taxed as income tax).

  10. Tax Structures: Proportional Tax • A proportional tax is when the tax rate percentage is the same for all income levels.

  11. Tax Structures: Progressive Tax • A progressive tax is when the tax percentage rate increases as income increases.

  12. Tax Structures: Regressive Tax • A regressive tax is when the tax percentage rate decreases as income increases. • Does this ever happen? Examples?

  13. Tax Structures: Regressive Tax • A regressive tax is when the tax percentage rate decreases as income increases. • Does this ever happen? Examples?

  14. Tax Web

  15. Section 2: Federal Taxes • The Federal Government is the branch that receives the most taxes.

  16. Tax Withholding • Employers withhold money from employees paychecks throughout the year and send it to the government. • Estimated amount of taxes owed.

  17. Tax Return • At the end of the year, the amount withheld might have been too much or too little. • Tax payers must file a tax form which either returns or pays money.

  18. Personal Exemptions • Tax exemptions are amounts of money that you don’t need to pay taxes on. • Examples: • Charitable donations • Interest on loan • Business expenses/investment • Medical expenses

  19. Gross Income vs. Taxable Income • Gross income is the total amount of money earned. • Taxable income is after tax deductions have been taken out. • Taxable Income = Gross Income – Deductions

  20. Practice Problem: • You make $30,000/year, your spouse makes $40,000 • You gave $5,000 away this year • You paid $4,000 in interest for loans • Your tax rate is 15% • How much do you end up with?

  21. Tax Incentives • The tax system incentivizes certain behavior • You pay less if you… • Marry • Have children • Donate money • Invest in a home • You pay more if you… • Purchase a second (vacation) property • Smoke or gamble • Live lavishly

  22. Section 3: Federal Spending • The Federal Budget goes primarily to the Military, Medicare/Medicaid, and Social Security.

  23. Federal Spending Graph

  24. Mandatory vs. Discretionary Spending • Mandatory Spending: Spending required by current legislation • Social Security, Medicare/Medicaid • Discretionary Spending: Spending that is optional (not required) • Military, Transportation, Agriculture

  25. Discretionary “Other” Spending • Dept. of Education • Dept. of Agriculture • Dept. of Energy • Corps of Engineers • Dept. of Labor • Dept. of Health Services • Dept. of Energy • EPA

  26. Debt/Deficit • Spending outpaces Revenue

  27. Section 4: State and Local Spending • State and Local governments spend money on infrastructure (roads) and education.

  28. State Budgets • State revenue comes from… • State income tax • Sales tax • Excise tax (Sin tax) • State money is spent on… • Education • Roads/infrastructure • Public welfare

  29. Pennsylvania State Budget

  30. Local Budgets • Local budgets receive most of their money through… • Property taxes • Local government spends most of their money on… • Education (Local area school district)

  31. Local Budgets/Education • If funding for schools is local, what effect does that have on public school systems?

  32. Tax Web

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