Download Economics Unit IV Typed Notes

Unit IV) Taxes
I) What is fair?
What are taxes?
Tax – a charge to people and businesses to pay for the operation of government, who in
turn provides goods and services.
Public Goods and Services – something that can’t be kept from those who don’t pay for
it, and something that can be used by a person without reducing the amount to others.
Ex: Roads, Education (#1 for states), Parks, National Defense, interest on national
debt!!
Voluntary Compliance – a system that relies on each person to report their income
freely and voluntarily, figure their tax, and return on time.
Personal Income Tax – based on the amount of “taxable” income people get annually.
(Lots of wiggle room here though)
Tax Liability – the amount of tax $ you are responsible for/must be paid.
Withholding - $ that employers take out of employees paychecks. (before they are
cashed). It is deposited to state/fed.
Mandated: FICA (Social Security), State,
Federal, Medicare, City
(NYC),
County? Alimony? Child Support?
Voluntary: Credit Union, Investments, Union
W-4 Form – allows employers determine how much to withhold from paychecks. Ex.
0,1,2.
Note – the higher you claim, the less taken out
W-2 Form – sent by employers at end of calendar year (January) for tax filing
purposes…states total income, and taxes paid the previous year.
II) Rights and Responsibilities
Rights:
1) Right to privacy of all your tax information. (one unofficial exception to rule)
2) Right to appeal an IRS judgment. It doesn’t mean you’ll win though!
Responsibilities:
1) File a return by April 15th that includes:
a) Copy of W-2 (for verification of truth)
b) Proof of all other income/investments
c) Any Exemptions/Deductions – kids or tuition
d) Calculation of your return (refund or tax)
2) Obtain all forms – sent by the government, or obtained at banks, post offices,
libraries… or ONLINE! (EFILE)
Note – electronic filing has become the standard method.
3) Be complete and honest
4) Sign/Mail – Apr. 15th Deadline (usually)
III) Tax Filing Process: SEE MR. Basel’s Powerpoint!!
Efile is now the most common way in which file their returns (over 75%)
Simplicity is now the name of the game with programs like TurboTax
IV) Limits/Requirements of 1040EZ
Independents must file if you earned $10,000 and paid state/federal taxes. (Single or
Married)
Dependents must file a return if you earned more than $6,100 “under the table”.
Use the 1040EZ if:
1) Made less than $100,000
2) Have no kids
3) Earned less than $1,500 interest income (from investments, cd’s)
4) You have no IRA account
** Other forms include IT200, 1040, 1040A, 1040X
V) General Tax Types
Taxes – on economic sales. Can be set %, or a set amount.
Ex.
1) Retail Sales (8.75% Oneida) (8.25% Herk)
2) Excise (Sin) Taxes on cigs, alcohol, fat?
3) Excise taxes on hotel/bed, gasoline
Revenue ($) used to support major expenses like schools, Medicaid, highways
B)
Income Taxes – on earned/unearned. Began at 1% and has evolved to roughly
30% after state, federal, social, Medicare.
C)
Property Taxes – on assessed items, including car, house, land, boats.
Revenue used toward local services: police, fire, education, water, libraries, water
sanitation.
Added Taxes – Lottery Income
Transaction
VI) Tax Systems
1) Progressive Tax – a tax that takes a larger % of income from the rich than the
poor. (Brackets used in the U.S.) (See on next slide)
Ex. $100,000 – 20% (20,000) = $80,000
$ 20,000 - 10% (2,000) = $18,000
2) Regressive Tax – a tax that takes a higher % of income from the poor than from
the rich (usually a set amount of $). Feudal Times.
Ex.
$100,000 - $4,000 = $96,000 (4%)
$20,000 - $4,000 = $16,000 (20%)
Recent Tax Brackets
(SEE POWERPOINT)
3) Proportional (Flat) Tax – a tax that takes the same % of income from all income
groups.
Ex. $100,000 – 10% ($10,000)= $90,000
$ 20,000 - 10% ($2,000) = $18,000
This may look the best, but it may not raise enough money.
Today the U.S. uses a mix of Proportional and Progressive taxes. In the end: Vertical
Equity supports “unequals taxed unequally.”
Tax Credits – deductions from taxable income responsibilities.
Examples include:
Kids
Mortgage Interest
College Loans/Tuition Fees
Home Improvements/Star Type Programs
Business Expenses
Retirement Contributions
Day-Care Costs.
?? Why Give People These Breaks??
4)
VII) Fiscal Policy
Can we control the economy through various tax/spend policies?
Increasingly, the federal/state government are using their powers of the purse to improve
(or try) our economy…
1917 Creation of the FED
2009 Federal Stimulus Package passed; Cash for Clunkers.
2010 NYS Budget – massive spending cuts offset $7.5 Billion deficit.
2011: Signs of recovery. Unemployment at 9.0%
2012: Can we avoid a “Fiscal Cliff?”
2013: Furlough!! Sequestration
OPTION A: RAISE TAXES and SPENDING = less consumer and business
spending, but inflation levels off. Done to stimulate spending in the economy
through gov’t sponsorship of projects/programs (NEW DEAL)….CCC
AKA Keynesian Economics
(John Maynard Keynes)
Or
VALUE ADDED TAX (NATIONAL SALES TAX)
OR
OPTION B: LOWER TAXES = stimulates spending by people/business’, eco.
growth, greater employment, but... inflation may increase (prices go up)
AKA SUPPLY-SIDE ECONOMICS
AKA REAGANOMICS
AKA Trickle-Down Economics
OR
OPTION C: Cut Spending and Subsidies:
Subsidy – assistance to a business (farm) or economic sector (oil) to prevent it’s decline
or to keep the commodity (corn) (gasoline) prices down.
On Federal Programs: would allow a portion of debt to be repaid, reduce burden of taxes,
could slow economic growth or raise unemployment however
Springville
Exercise: See Handout
VIII) Expenditures/Allocation Activity
Imagine
your Senate Appropriations Committee has been given an extra Billion Dollars
(1,000,000,000) to spend on a variety of programs that you will prioritize.
Yet you have choices:
1) Allocate Money – this program matters
2) Cut Program – it isn’t worth keeping
3) Give to States – let them handle it.
4) Privatize – let business’ handle. S+D
** Teams must utilize each of the options at least once.
Eligible Programs
3)
Interstate Highways 11) Unemployment
4)
National Defense
Insurance
5)
Fire/Police Protection 12) Alcohol and Drug
6)
College Loan Program
Treatment Facilit.
7)
Medicaid
13) School Lunch Subs.
8)
Adult – Ed Job Training
9)
Public Libraries
10)
Air Traffic Controllers
11)
Youth Shelters
12)
Cancer Research Center
Tax Assessment
20 M/C
9 Fill in Blank
10 T/F
(No Essay, Diagrams, Short Answer)
Expect similar format to previous quiz for fill in blank questions.
Topics: Basic Terms, Tax Forms, Tax Systems, Tax Types (excise, sin etc.) Fiscal Policy
Regional Exam
35 Multiple Choice
Constructed Response – 3 questions
1 Thematic Essay
Time: 120 Minutes
10% Basic Concepts
35% Micro (S/D)
35% Macro (Workers, Business’, Consumer)
Personal Finance 10% (Budget)
Global Economy (Interdependence)