the united states tax system
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The United States Tax System. Corporate Individual International Company Taxes Investment Tax Expatriate Tax Sales Tax. Do Now : Why Tax?. Group Activity. Background: - PowerPoint PPT PresentationTRANSCRIPT
The United States Tax System
Corporate
Individual
International Company Taxes
Investment Tax
Expatriate Tax
Sales Tax
Group Activity
Background:
In a very unusual act of bipartisanship, the members of Congress have agreed to wipe the slate clean and reinvent the tax code. As part of this unprecedented act, Congress has invited focus groups to Washington D.C. to share in the development of a new and improved tax code for the United States.
Your Task:
Propose a new tax code for Individual, Corporate, and International Business Identify and describe the implications of your choices Prepare to defend your choices and describe how each citizen of the U.S. will benefit from the new tax code.
Refer to worksheet to complete activity.
Do Now: Why Tax?
History of Taxation in the United States
In United States, the tax system evolved dramatically through the
nation's history.
Tariffs provided the main source of revenue for the government.
New taxes were often introduced during times of war to raise additional revenue,
and they were generally allowed to expire once the war was over.
Taxation in the United States can be traced to the colonists, when they were
heavily taxed by Great Britain on many things from tea to legal and business
documents that were required by the Stamp Tax.
Most colonists objected to this form of taxation, since they had no political voice
or input about the creation of new taxes, giving rise to the term "taxation without
representation.“
History of Taxation in the United States Since the King of England ignored demands by the colonist to abolish
taxes, some colonists participated in protests such as the Boston Tea Party.
However, that is not the only stamp act that existed in America's history.
Toward the end of the 1700’s, after the colonies obtained their independence
from Britain, Congress passed the Stamp Act of July 6, 1797, that levied taxes on
wills, personal estates, and the transferred possessions of the deceased. Estate and
so-called death taxes were some of the earliest additions to the tax code. The tax
only lasted 5 years, and was repealed in 1802.
History of Taxation in the United States Income Taxes in America
The first income tax was created in 1861 during the Civil War as a mechanism
to finance the war effort.
Congress passed the Internal Revenue Act in 1862 which created the Bureau of
Internal Revenue, an eventual predecessor to the IRS. The Bureau of Internal
Revenue placed excise taxes on everything from tobacco to jewelry. However, the
income tax did not last and was not renewed in 1872.
History of Taxation in the United States
In 1894 Congress passed the Wilson-Groman tariff which was an income tax at
the rate of 2% for income over $4,000 but it was overturned by the Supreme Court
in 1895.
In early 20th century the income tax enjoyed renewed support, and in February
of 1913 the Sixteenth Amendment was ratified to the Constitution, thus granting
Congress the power to collect taxes on personal income. The new system collected
the income tax at the source, it is done today, where taxes are initially withheld
before the income reaches the recipient.
In 1914 The Bureau of Internal Revenue released the first income tax form,
called Form 1040. This still remains the main income tax form and it has been re-
issued almost every year since then.
The Bush Tax Cuts
The Economic Growth and Tax Relief Reconciliation Act of 2001
First, the evolution of taxes…
The U.S. has a progressive income tax system, which means that lower-income
taxpayers pay a lower percentage of their income than do higher-income taxpayers.
For example, those with income up to $100,000 might pay 15% of their income;
those with income from $100,001 to $250,000 might pay 28%; and those with
income over $250,000 pay 35%. Those reporting under $30,000 might not pay any
tax at all.
Jobs and Growth Tax Relief Reconciliation Act of 2003
The Bush Tax Cuts
The Process
President Bush and the Congress voted to reduce the tax percentage rates from
those of a previous administration.
Taxpayers from top to bottom have paid a lower income tax rate for about 10
years.
That the Bush administration changed the income tax rates was not unusual;
income tax rates have moved up and down numerous times for various reasons
under both Democrat and Republican Presidents.
The Bush Tax Cuts
To secure the votes required to pass the tax rate reduction, the Bush
administration agreed to a time limit; the rates would remain at the lower level for a
specific time period, subject to renewal.
The law establishing the lower rates is set to expire at the end of this year
(Dec.31, 2011).
Unless an agreement is reached, the tax rates will return to the levels at which
they were prior to the reduction.
The Process
The Bush Tax Cuts
The Economic Growth and Tax Relief Reconciliation Act of 2001
TTYN: Working with your neighbor, answer the following questions
1. Extending the current tax rates is a “tax cut for the rich.
2. Failing to extend the rates will result in a tax increase
3. Extending the current tax rates will not “cost” the government $700
billion (estimate).
4. Extending the current tax rates will add $700 billion to the federal
deficit
The Bush Tax Cuts
Proponents of the Bush Tax Cuts
''By ensuring that Americans have more to spend, to save and to invest, this legislation is adding fuel to an economic recovery,'' - President George Bush
Conservatives believe extending the tax cuts is key to fostering job growth and healing a wounded U.S. economy.
Many economists believe that it doesn’t make sense to raise any federal taxes during the uncertain economy we are struggling through. In other words, the more money we leave in private hands, the quicker economic recovery will happenNeeded to boost investor confidence and create jobs
Reduce the uncertainty in America and help small businesses
Not extending the Bush Tax cuts would clearly increase taxes on the American people
Obama’s Takes Action
Do Now: What will President Obama do about the Bush Tax cuts?
"the right thing to do" – President Obama
Obama extends Bush Tax cuts for two years for all earners -- both those making above and below $250,000 annually, while also continuing current tax rates on dividends and capital gains, also for two years.
In addition, the estate tax, which expired in 2009, would be temporarily set at 35 percent with a $5 million exemption, while extended unemployment benefits would continue for 13 months.
Obama also said that negotiators had agreed to a one-year, 2-percent cut in the payroll tax for all workers.
The Impact of the Bush Tax Cuts
The Impact of the Bush Tax Cuts
The Impact of the Bush Tax Cuts
Corporate Taxes
According to the CBO - The corporate income tax is a significant part of the
United States’ tax system. CBO – Congressional Budget Office
Federal corporate income tax revenues in 2004 were $189.4 billion, or 1.6 percent
of gross domestic product (GDP); 2010 147B and 1%; 2011 266B and 1.8%
TTYN: Why do we even need corporate taxes?
Revenues, Revenues, Revenues
Acronym that you should know (OECD) The Organization for Economic Co-
operation and Development
Revenues, Revenues, Revenues
One reason revenues are so low
OMBINED CORPORATE TAX RATES First NameLast NameEmail AddressZip Code•Download
If you were establishing a new business whose products would be produced and sold worldwide, would you set it up in the United States? If not, what country, from a purely economic standpoint would you select?
Do you agree or disagree with the following statement? Please explain
Resolved - “From a purely economic standpoint, it makes no sense to tax corporations at all, because only people pay taxes, not legal entities. The corporate tax is paid by customers in terms of higher prices, by suppliers in terms of lower volumes of business, by employees in terms of lower wages and by stockholders in terms of lower returns.”
Read the following statement and respond.
Resolved - “Countries realized they were losing business — and jobs — to countries with lower rates; so most countries have been reducing their corporate-tax rates to attract new businesses and global firms.”
Response: In light of the previous statement. What should the U.S. do and why?
Small Group Activity
Obama Administration Response:
“The Obama administration has said that any corporate-tax rate reduction must be
"revenue neutral," by which it means that rates can only be lowered if corporate
"loopholes" are closed. It is true that some companies do benefit from certain
deductions that have little or no economic benefit (except to the companies); hence,
eliminating the "loophole" and reducing the corporate rate by an equivalent amount
would be a tax-revenue wash.
There are other so-called "loopholes," such as accelerated depreciation and foreign-
tax deferral, which, if eliminated, would do far more economic damage by
discouraging new investment and job creation than any benefit from the short-term
revenue gain that might be obtained by their elimination”
Partisan Politics
“We are not going to raise taxes on the American people. We’re not going to raise taxes on the very people that we expect to reinvest in our economy and to help grow jobs,” - John Boehner, R-Ohio, said.
President Barack Obama is expected to seek a new base tax rate for the wealthy to ensure that millionaires pay at least at the same percentage as middle income taxpayers.
The "Buffett Rule" for Warren Buffett, the billionaire investor who has complained that rich people like him pay a smaller share of their income in federal taxes than middle-class taxpayers.