Download AP Taxes Power Point-2

Taxation
“In this world nothing can be said to be certain,
except death and taxes.”
Benjamin Franklin
Why We Tax…
• Fiscal Policy
• Cost of Government & Goods /Services
• Redistribute Income (Lorenz Curve)
• Encourage / Discourage Behavior
Sin Taxes (Excise Tax)
– Discouraging behavior or raising revenue?
• Cigarettes / Tobacco
• Alcohol
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. Leader if made $47,500 last
year.
• Net income = $47,500 - $47,500(.25)
• Net income = $47,500 - $11,875 = $35,625
In reality…
•
US Federal Tax Rates: (only 3 % of Americans make over $250,000)
•
Filing under a different status will change the rates.
Property Tax (Flat) Proportional
• Tax on something
you own
• Usually expensive
like your house or
boat
• For example:
$100,000 home
– 5% property tax rate
• 100,000 X .05 =
$5,000 property tax
Income Tax Progressive
Tax on a household income
% of changes based on
income
“tax the rich more!”
The more you make, the
higher your tax
“Ability to Pay Principle”
“Benefits Received”
Deductions make this much
less progressive. -Buffet
Income
$0-$15,000
$15,001$20,000
$20,000$30,000
$30,000$50,000
Tax
Rate
0%
10%
15%
25%
$50,000$100,000
33%
$100,001 +
38%
Regressive Tax
• 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
• Incentive?
OTHER TAXES
•
•
•
•
•
•
•
•
Wheel Taxes
Estate Tax “Death Tax”
Gift Tax
Gas Taxes
Special Taxes (Arena)
Capital Gains Tax
Tariff
Others by community or state…
Revenue / Spending
Why taxes will increase?
• Social Expectations “I deserve…”
» Entitlements
» Welfare
» Lorenz Curve
• Increase Cost of Technology
• Increase Life Expectancy
» Social Security
» Medicare
Fiscal Policy
• Expansionary Policy
» Lower Taxes
» Increase Spending / Transfer Payments
• Contractionary Policy
» Raise Taxes
» Decrease Spending / Transfer Payments
• Raising revenue without discouraging the
economy. (Crowding Out)
» Laffer Curve (Tax Revenue v. Tax Rate)
Problems With Fiscal Policy
• Effectiveness
– Slow process. Changing tax laws.
• Political Consequences
– Expansionary policy may be popular but contractionary
policy may get your opponent elected.
– Members of the “Fed” don’t have to be reelected.
• Budget Deficit (Surplus) / National Debt
– Check out the U.S. Debt Clock!!!