taxes and the economy to understand the role of taxes in our economy

Taxes and the Economy

To understand the role of taxes in our economy

Two Basic Principles of Taxation

Benefits received principle – people benefit from the taxes they pay

Two Basic Principles of Taxation

Benefits received principle – people benefit from the taxes they pay– Ex. We pay a large tax on gas, and that tax foes to

maintain the roads which we use to drive on

Two Basic Principles of Taxation

Benefits received principle – people benefit from the taxes they pay– Ex. We pay a large tax on gas, and that tax foes to

maintain the roads which we use to drive on

Ability to pay principle – those who have the greatest income should pay the highest tax rates

Two Basic Principles of Taxation

Benefits received principle – people benefit from the taxes they pay– Ex. We pay a large tax on gas, and that tax foes to

maintain the roads which we use to drive on

Ability to pay principle – those who have the greatest income should pay the highest tax rates– Ex. Our income tax system

Two Other Characteristics

Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle

Two Other Characteristics

Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle– Ex. Gov’t will cut 10% of taxes if business upgrades

equipment

Two Other Characteristics

Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle– Ex. Gov’t will cut 10% of taxes if business upgrades

equipment

Because the gov’t creates the taxes, they try to be hush-hush

Two Other Characteristics

Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle– Ex. Gov’t will cut 10% of taxes if business upgrades

equipment

Because the gov’t creates the taxes, they try to be hush-hush– They will pass taxes upon those who are least likely

to be offended

Two Other Characteristics

Sometimes the gov’t will give tax breaks to encourage growth, this is known as the productivity principle– Ex. Gov’t will cut 10% of taxes if business upgrades

equipment

Because the gov’t creates the taxes, they try to be hush-hush– They will pass taxes upon those who are least likely

to be offended– Ex. Taxes on sale of alcohol and liquor “sin taxes”

The Burden of Taxes

Three ways to classify taxes

The Burden of Taxes

Three ways to classify taxes– Progressive – more you make, the more they take

The Burden of Taxes

Three ways to classify taxes– Progressive – more you make, the more they take– Regressive – less you make the more they take

The Burden of Taxes

Three ways to classify taxes– Progressive – more you make, the more they take– Regressive – less you make the more they take– Proportional – all pay the same percentage of their

income

Types of Taxes

Personal income tax, there are several brackets in this progressive system

10% (9K), 15% (36K), 25% (88K), 28% (183K), 33% (398K), 35% (399K), 39.6% ($400K)

Types of Taxes

Personal income tax, there are 3 brackets in this progressive system– Greatest source of income

Types of Taxes

Personal income tax, there are 3 brackets in this progressive system– Greatest source of income

Social Insurance Taxes, proportional tax is the 2nd greatest source of income

Types of Taxes

Personal income tax, there are 3 brackets in this progressive system– Greatest source of income

Social Insurance Taxes, proportional tax is the 2nd greatest source of income

Corporate income tax, 3rd greatest, range up to 36% of profits

State and Local Taxes

Sales tax is most important for the state

State and Local Taxes

Sales tax is most important for the state Property tax for the local

Where does the money go?

Where does the money go?

Remember, the gov’t is not out to turn a profit

Where does the money go?

Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters

(what is good politically is not always good economically)

Where does the money go?

Remember, the gov’t is not out to turn a profit Also, elected officials are try to please voters

(what is good politically is not always good economically)

About $1 out of $5 of the GDP is spent by the gov’t in 2001, Today it is about $1 out of every $3 of the GDP

President and the Budget

President prepares and delivers the budget to Congress

President and the Budget

President prepares and delivers the budget to Congress

By October 1st , that must be passed

President and the Budget

President prepares and delivers the budget to Congress

By October 1st , that must be passed Problem: In the 20th century, the gov’t

generally spent more money that it took in (deficit)

President and the Budget

President prepares and delivers the budget to Congress

By October 1st , that must be passed Problem: In the 20th century, the gov’t

generally spent more money that it took in (deficit)– Now they must collect more in taxes to begin to pay

off debts

President and the Budget

President prepares and delivers the budget to Congress

By October 1st , that must be passed Problem: In the 20th century, the gov’t

generally spent more money that it took in (deficit)– Now they must collect more in taxes to begin to pay

off debts– However, we have problems meeting the budget

each year (war on terror)