Which is the fairest way for income taxes?

Which is the fairest way for

income taxes?

Take the survey & discuss your answers.

Everyone pays the same percentage.

Those with higher incomes pay a higher

percentage.

Have no income tax & raise money

another way.

Chapter 12– Taxes and Taxation

https://unitenews.wordpress.com/20

12/07/

Republican political

cartoon on

taxes:

Democraticpolitical

cartoon on

taxes:

What are “Good Taxes”?

According to Adam Smith:

Simple to understand

Avoid negative incentives

Avoid loopholes

Equity-fairness

Convenience & Efficiency

Essential Questions

Why & how does the

government

redistribute income?

How do regressive, progressive, and

proportional taxes

affect redistribution

of income?

• The government redistributes income

-through different tax rate structures & creates a safety net

that helps alleviates poverty & support social services

• Regressive, progressive, and proportional taxes decide

-the amount of taxes an individual must pay

The Main Ideas

Where Does the Money Come From?Federal Government Income Broken Down

What Public Goods Does the Money Buy?

Federal Government Spending Broken Down

Where Does State Money Come From?State Income Broken Down

What Public Goods Does the Money Buy?

State Government Spending Broken Down

What do other

countries do for

taxes?

“Some of the most popular

countries that offer the financial

benefit of having no income

tax are Bermuda, Monaco, the

Bahamas, Andorra and the United

Arab Emirates (UAE).”

Investopedia.com

What % do other countries take for taxes?

Why Do We Pay Taxes?

So that the

governments

can…

o Pay for goods

the general

public uses

o Pay for services

the general

public uses

Progressive, Regressive, and Proportional

TaxesProgressive Tax: As income increases, tax percentage increases

Example) Income of $20,000 pays 15%, vs. income of

$100,000 pays 25%

Regressive Tax: As income increases, tax percentage decreases

Example) You can more easily afford to pay sales taxes with

a higher income

Proportional Tax: Regardless of income, tax percentage remains the

same Example) Everyone pays 10% at all income levels

Federal vs. State/Local Taxes

FEDERAL INFORMATION

o Most income from

– Income taxes

– Payroll taxes

• Social security taxes

• Medicare taxes

• Unemployment taxes

o Income pays for

– Military defense

– Highways and roads

– Other gov’t programs

STATE/LOCAL INFORMATION

o Most income from

– Sales taxes

- Income & Property taxes

- Grants from Fed. gov’t

o Income pays for

- Education

- Public Welfare

- Roads and repairs

- Public Safety

• Police and Fire

Types of Taxes Income Taxes

Income Taxes• Are charged Federally and by the State

– Rates are much different

• Federal Income Rate is much higher than the State

• Charged against individuals and corporations

• Usually considered a “progressive tax”

– Federal rates get higher as income increases & so do most state rates

Types of Taxes – Payroll Taxes

• These are the other things taken from your paycheck each time

• FICA – Federal Insurance Contributions Act– Also known as Social Security– Created to make sure people were “secure” when they were no longer in

the workforce (1935)• Followed the financial issues of the 20’s• This is a regressive tax

• Medicare Tax – Additional tax to help alleviate medical costs to government when people

are unable to pay bills themselves

• This is a proportional tax

Types of Taxes – Transaction and Property Taxes

o Sales Tax

• Percentage charged upon the purchase of certain items

• This is a regressive tax – poorer people pay more.

o Real Estate Tax

• Percentage charged on the value of land owned

• This is a proportional tax.

o Personal Property Tax

• Percentage charged on all large personal items

• Examples: Cars, Boats, Trucks, RVs, etc.

• This is a proportional tax.

Possible Additional Taxes

o Localities may opt to charge additional fees.

• Registration fees – proportional tax usually

• Licensure fees – proportional tax usually

• Additional sales tax fees -regressive taxes

• Gas taxes or transportation taxes-regressive taxes

o Excise taxes – taxes to try to stop a behavior

• Additional taxes on cigarettes and alcohol

✓ Goal is to make them too expensive for people to buy

• These are regressive taxes.

How much money you want to be earning (per year) when you are 30?

What percentage do you think that income has to pay to the government in taxes (in the US)?

In reality… US Federal Tax Rates: (only 3 % of Americans make over $250,000)

Add 10 -15 % more depending on which state you work in

Income Tax in USA

IRS – tax collection agency in USA

Taxes are deducted throughout year

Every citizen must file every year by:

If you paid more during the year then you need to:

you get a refund

If you paid less during the year then you need to:

pay the difference

What Are Tax Deductions & Loopholes?

Tax Deduction – reduction of your taxable incomeo Lowers the overall amount (base) you will be charged a

tax on

• Examples: local taxes paid, student loans, charitable contributions, home mortgage interest

• These are deducted b/c they were already paid to a gov’t agency or charity

Tax Loophole-

A provision in the laws governing taxationthat allows people to reduce their taxes.

• Tax incentives

• “write offs”

What are tax credits?

Tax Credit – reduces the actual tax

o Government encourages public to purchase specific products for the benefit to the general public

• Example: Hybrid cars, energy efficient windows/appliances

• Helps in reducing other bills for government long term

https://smartasset.com/taxes/virginia-

tax-calculator

What does the Federal & State Governments take out of my pay?