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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)