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
Republican political cartoon on taxes: https://unitenews.wordpress.com/20 12/07/
Democratic political 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 Main Ideas • 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
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 “Some of the most popular countries do for countries that offer the financial taxes? 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 Taxes Progressive 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 STATE/LOCAL INFORMATION o Most income from o Most income from – Income taxes – Sales taxes – Payroll taxes - Income & Property taxes • Social security taxes - Grants from Fed. gov’t • Medicare taxes o Income pays for • Unemployment taxes - Education o Income pays for - Public Welfare – Military defense - Roads and repairs – Highways and roads - Public Safety – Other gov’t programs • 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 income o 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 taxation that 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 ?
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