Download 11. THE TAX SYSTEM

3/23/2014
U.S. NATIONAL DEBT CLOCK
• The Outstanding Public Debt as of March. 23,
2014 is:
17,560,000,000,000
• It is about 105% of the U.S. GDP
• The estimated population of the United States
is 318,000,000
so each citizen's share of this debt is
$55,200.
11. THE TAX SYSTEM
© 2007 Thomson South-Western
© 2007 Thomson South-Western
Public debt by country
(as % of GDP, 2012)
Country
Debt % GDP
External Debt %
GDP
Japan
214.3
45
Greece
161.3
174
Ireland
110.2
1008
Italy
114.6
108
Singapore
111.4
480
Germany
81.7
142
World average
64
United States
73.6
106
Canada
84.1
64
Sweden
38.6
187
China
31.7
8.7
Difference between public debt and
external debt
• Public debt: government’s liability including
domestic and foreign ones
• External debt: foreign currency liability
• U.S. external debt = U.S. debt owned by
foreign countries - dollar liability = ?
India http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt
59.1
20
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© 2007 Thomson South-Western
Does the U.S. have too much spending or
too much tax? 2010
Debt change during …
4
France
Tax burden % of
GDP (all levels)
59.8
Government expenditure
% of GDP
52.8
Sweden
47.9
52.5
U.K.
38.9
47.3
Germany
40.6
43.7
Norway
42.1
40.2
Canada
32.2
39.7
U.S.
26.9
38.9
Japan
28.3
37.1
Australia
30.8
34.3
http://en.wikipedia.org/wiki/Government_spending
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“In this world nothing is certain but death and
taxes.”
. . . Benjamin Franklin
“In this world nothing is certain but death and
taxes.”
. . . Benjamin Franklin
100
100
60
60
40
40
20
20
0
0
1789
Today, taxes
account for up
to a third of
the average
American’s
income.
80
80
Taxes paid in Ben
Franklin’s time
accounted for 5
percent of the
average
American’s
income.
1789
Today
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Figure 1 Government Revenue as a Percentage of GDP
Percent of
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The Federal Government
Revenue as
GDP
35
• The U.S. federal government collects about
two-thirds of the taxes in our economy.
• The largest source of revenue for the federal
government is the individual income tax.
• Individual Income Taxes
Total government
30
25
State and local
20
15
Federal
10
5
0
1902
1913
1922 1927 1932 1940
1950
1960
1970
1980
1990
2000
• The marginal tax rate is the tax rate applied to each
additional dollar of income.
• Higher-income families pay a larger percentage of
their income in taxes. (Progressive tax)
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© 2007 Thomson South-Western
Receipts of the Federal Government: 2009
The Federal Government
Table 2
• The Federal Government and Taxes
• Payroll Taxes: tax on the wages that a firm pays its
workers.
• Social Insurance Taxes: taxes on wages that is
earmarked to pay for Social Security and Medicare.
• Excise Taxes: taxes on specific goods like gasoline,
cigarettes, and alcoholic beverages.
© 2007 Thomson South-Western
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website©for
classroom
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The Federal Income Tax Rates: 2010
Receipts of the Federal Government 2009
Individual Income
Tax, 43%
Social Insurance
Tax, 42%
Corporate Tax,
7%
Other, 8%
This table shows the marginal tax rates for an unmarried taxpayer. The taxes owed by
a taxpayer depend on all the marginal tax rates up to his or her income level. For
example, a taxpayer with income of $25,000 pays 10 percent of the first $8,375 of
income, and then 15 percent of the rest.
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© 2007 Thomson South-Western
The Federal Government
The Federal Government
• Federal Government Spending
• Federal Government Spending
• Government spending includes transfer payments
and the purchase of public goods and services.
• Expense Category:
•
•
•
•
•
•
•
• Transfer payments are government payments not made in
exchange for a good or a service.
• Transfer payments are the largest of the government’s
expenditures.
Social Security
National Defense
Income Security
Net Interest
Medicare
Health
Other
© 2007 Thomson South-Western
© 2007 Thomson South-Western
Spending of the Federal Government: 2009
Table 4
Federal Government Spending: 2009
Net Interest, 5%
Other, 20%
Social Security, 19%
Defense, 19%
Medicare, 12%
Income Security, 15%
Health, 9%
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website©for
classroom
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The Federal Government
Where does the money go 2011
• Budget balance : T - G
• Budget Surplus: T – G > 0
• A budget surplus is an excess of government
receipts over government spending.
• Budget Deficit: G – T > 0
• A budget deficit is an excess of government
spending over government receipts.
© 2007 Thomson South-Western
© 2007 Thomson South-Western
The Federal Government
• Financial Conditions of the Federal Budget
• A budget deficit occurs when there is an excess of
government spending over government receipts.
• Government finances the deficit by borrowing from the
public.
• A budget surplus occurs when government receipts
are greater than government spending.
• A budget surplus may be used to reduce the
government’s outstanding debts.
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Figure 1. Outlays, Receipts, and the
Surplus, 1970 — 2004
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The Demographic and Fiscal Challenge
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© 2007 Thomson South-Western
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State and Local Government
The Demographic and Fiscal Challenge
• State and local governments collect about 40
percent of taxes paid.
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© 2007 Thomson South-Western
Receipts of State and Local Governments: 2007
State and Local Government
• Receipts
•
•
•
•
•
•
Sales Taxes
Property Taxes
Individual Income Taxes
Corporate Income Taxes
Federal government transfer
Other
Taxes
$
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website©for
classroom
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Spending of State and Local Governments: 2007
State and Local Government
Table 6
• Spending
•
•
•
•
Education
Public welfare
Highways
Other
© 2007 Thomson South-Western
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permitted in a license distributed with a certain product or service or otherwise on a password-protected website©for
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Lump-Sum vs Income Taxes
TAXES AND EFFICIENCY
• Policymakers have two objectives in designing
a tax system...
– Efficiency
– Equity
• lump-sum tax is a tax that is the same amount
for every person, regardless of earnings or any
actions that the person might take.
• income tax tax amount is associated with
person’s income.
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Table 7 Three Income Tax Systems
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Table 8 The Burden of Federal Taxes
Source: Congressional Budget Office. Figures are estimates for 2005.
Dollar figures are expressed in 2001 dollars.
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© 2007 Thomson South-Western
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