economics 5/2/11 mrmilewski

Economics 5/2/11 http://mrmilewski.com

• OBJECTIVE: Demonstration of Chapter#6 & begin examination of taxes.

• I. Administrative Stuff-attendance & distribution of test

• II. Chapter#6 Test• III. Journal #21 pt.A

-Examine “Economics at a Glance” p.225

-Answer question #1 p.225

• IV. Journal #21 pt.B-notes on taxes

• V. Tax Film

Chapter#9

• We will cover sections (1-3)

• Section#4 can take a long walk off a short pier.

Why taxes?• An enormous amount of money is required to run

the federal, state, and local governments of the United States.

• Total revenue collections by all levels of government have grown dramatically over the years.

• Even when adjusted for inflation and population growth, these revenues increased by nearly 800% since 1940.

Growth of TaxesFigure 9.1

Economic Impact of Taxes• Taxes and other gov’t revenues influence the

economy.• It affects resource allocation, consumer behavior,

and the nation’s productivity and growth.• The burden of a tax does not always fall on the

party being taxed, because some of the tax can be transferred to others.

Types of TaxesFigure 9.3

Taxing Suppliers• A tax placed on a good or

service at the factory raises the cost of production, which shifts the supply curve to the left.

• If demand remains unchanged, the equilibrium price of the product goes up.

• People react to the higher price in a predictable manner–they buy less.

http://www.heritage.org/Research/Taxes/images/11632469.gif

Corporate Tax Rates

Criteria for Effective Taxes• Some taxes will

always be needed, so we want to make them as effective as

possible.• Taxes must meet

three criteria:• 1.) equitable• 2.) simple• 3.) efficient

http://www.businessweek.com/the_thread/economicsunbound/archives/texttaxprogressive_4142_image001.gif

QuintilesMinimum household income

Lowest Quintile $0Second Quintile $17,900Middle Quintile $30,500Fourth Quintile $45,200Highest Quintile $67,400Top 1% $307,500

Simple v. Complex Taxes• Individual income

tax–the tax on people’s earnings–is a prime example of a complex tax.

• Sales tax–a general tax levied on most consumer purchases–is much simpler.

Sin Tax• Often taxes are used

to encourage or discourage certain types of activities.

• Sin taxes are designed to raise revenue and reduce consumption of a socially undesirable product.

http://msnbcmedia4.msn.com/i/msnbc/Components/Art/BUSINESS/070215/CigaretteTax.gif


• OBJECTIVE: Examine the main sources of Federal Governmental Revenue.

• I. Journal #22 pt.A-Read “Profiles in Economics” p.237-Answer questions (1-2) p.237

• II. Return of Chapter#6 Test• III. Quiz#13• IV. Journal #22 pt.B

-notes on federal taxes

• V. Tax Film

Federal Taxes• The federal government

collects taxes from a number of sources.

• Individual Income Taxes

• Social Security Taxes

• Corporate Income Taxes

• Misc. Other Revenues

http://www.cartoonstock.com/newscartoons/cartoonists/ato/lowres/aton1952l.jpg

Individual Income Taxes• In 1913 the 16th Amendment to the U.S.

Constitution was ratified, allowing Congress to levy an income tax

• Since then, the federal gov’t has relied heavily on the individual income tax–the tax on people’s earnings–to finance its operations

• The federal government collected about 48% of its total revenue from taxes on people’s earnings

Federal Government Revenue by SourceFigure 9.4

Payroll & the IRS• In most cases, the individual income tax is paid

over time through a payroll withholding system• This is a system that requires an employer to

automatically deduct income taxes from an employee’s paycheck and send it directly to the government

• The agency that receives the tax payment is the Internal Revenue Service (IRS), the branch of the U.S. Treasury Department in charge of collecting taxes

April 15th

• After the close of the tax year on December 31, and before April 15 of the following year, the employee files a tax return.

• This annual report to the IRS summarizes total income, deductions, and the taxes withheld by employers.

• FYI-People who are self-employed are required to send quarterly estimates of their taxes to the Internal Revenue Service.

Income Tax is ProgressiveFigure 9.5

Single Individual TaxesFigure 9.6


• OBJECTIVE: Examine the main sources of Federal Governmental Revenue.

• I. Journal #23 pt.A-Read “Business Week Newsclip” p.243

-Answer questions (1-2) p.243

• II. Journal #23 pt.B-notes on federal taxes

• III. Math Practice

FICA• FICA - Federal Insurance Contributions Act tax levied on

both employers and employees to pay for Social Security and Medicare.

• Medicare - federal health-care program available to all senior citizens, regardless of income

• Employees and employers share equally in paying the tax for Social Security and Medicare

• Social Security tax is 13%. You pay 6.5% and your employer pays 6.5%

• payroll taxes - taxes that are deducted from your paycheck

Social Security & Medicare

• Since the Social Security tax is capped, it is proportional up to $76,200 and regressive thereafter

• More than 30 million senior citizens participate in Medicare.

• The Medicare component of FICA is taxed at a flat rate of 1.45 percent with no income cap.

Excise Taxes• excise tax – a tax on the

manufacture or sale of selected items, such as gasoline and liquor–is the fourth largest source of federal government revenue

• In 1991 Congress expanded the excise tax to include certain luxury goods

• An economic product is called a luxury good (or service) if the demand for the good rises faster than income when income grows

http://www.thepriceoffuel.com/images/Tax_Chart.gif

Luxury Tax• At first, the 19% luxury

tax was indexed to keep up with inflation and was applied to many goods

• The tax was unpopular, however, so boats, aircraft, jewelry, and furs were dropped in 1993

• Later, Congress decided to phase out the luxury tax by the year 2002

http://www.80stees.com/images/products/Monopoly_Luxury_Tax-T-link.jpg

Estate taxes• Estate tax - the tax the

government levies on the transfer of property when a person dies

• Estate taxes can range from 18 to 55 percent of the value of the estate

• The estate tax and the gift tax are progressive taxes–the larger the estate or gift, the higher the tax rate

http://www.taxpolicycenter.org/taxtopics/images/Estate-Tax_8.gif

Sources of State & Local RevenueFigure 9.7


• OBJECTIVE: Examine the concepts related to taxes.

• I. Chapter#9 Guided ReadingsComplete the following activities due today!

-Chapter#9 section#1 Guided Reading



-Chapter#9 Enrichment

• II. Chapter#9 Review-Review for Chapter#9 Test


• OBJECTIVE: Examine the main sources of State and Local Governmental Revenue.

• I. Journal #24 pt.A-Examine “Figure 9.8” p.240-Answer the caption question p.240-Examine “Figure 9.9” p.241-Answer the caption question on p.241

• II. Quiz #14• III. Journal #24 pt.B

-notes on state & local taxes

• IV. Mindjogger-video quiz on Chapter#9

Sources of State & Local RevenueFigure 9.7

Intergovernmental Revenue

• The largest source of state revenue is the category called intergovernmental revenue

• These are funds collected by one level of government that are distributed to another level of government for expenditures

• They represent nearly one-quarter of all state revenues

Michigan Budget 2007

http://www.michigan.gov/budget/0,1607,7-157-40794-139068--F,00.html

Michigan Budget 2009

Crestwood School District - General Fund Revenue2010-11

91.7% From State of Michigan

State80.7%

WRESA0.1%

Local0.9%

Local property taxes - "State"

11.0%

Federal7.0%

Transfers In0.3%

Crestwood School District Budget

Sales Tax• The sales tax is a general tax

levied on consumer purchases of nearly all products

• The sales tax is the second largest source of revenue for states, accounting for 21.7 percent of total revenues collected

• Many states levy taxes, fees, or other assessments on their employees to cover the cost of state retirement funds and pension plans

http://www.thestc.com/map-usa.gif

Remaining Revenues

• The remaining revenues that state governments collect are interest earnings on surplus funds, tuition collected from state-owned schools, corporate income taxes, and hospital fees

• For years, New Hampshire took pride in the fact that it had neither a sales tax nor an income tax

• The same is true for Alaska, Delaware, Montana, and Oregon–the other four states without a general sales tax

Public Lotteries

• The choice of tax is something that most states feel strongly about

• In the end, the choices that states face are like the choices individuals face–and we already know that there is no such thing as a free lunch

• Nearly three-fourths of the states run public lotteries to raise revenue

http://images.wikio.com/images/p/2ce32/mega-millions-.gif

States with Lotteries

http://economix.blogs.nytimes.com/2009/09/21/smaller-jackpots-for-states/

Property tax

• The second largest source of revenue for local governments is the property tax

• Property tax is a tax on tangible and intangible possessions such as real estate, buildings, furniture, automobiles, farm animals, stocks, bonds, and bank accounts

• The property tax that raises the most revenue is the tax on real estate

Personal Property• Taxes on other personal property are seldom

collected because of the problem of valuation• Instead, most communities find it more efficient

to hire one or more tax assessors–the people who assign value to property for tax purposes–to assess the value of a few big-ticket items like buildings

Public Utilities & Liquor• The third largest

source of local revenue is derived from the earnings of public utilities and state-owned liquor stores

http://www.howderfamily.com/graphics/blog/dry_counties_partial-1.jpg

economics 5/2/11 mrmilewski

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