The Inevitable… Death and Taxes

Mrs. Weber

Who Said?

“... in this world, nothing is certain but death and taxes.”

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Background Information

• What do you already know about taxes?
• Why do we have them?
• What do they do (+ and -)?
• What should they do?
• Who pays them?

What are the Criteria for a “Fair” Tax?�

• Ability to pay
• Efficiency
• Simplicity
• Benefits Received

Something to Think About

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• Taxes are incentives…there was a decrease in deaths in Australia the week before the death/inheritance tax was repealed.
• Efficiency vs. Equity Issue
• Putting a tax on something puts the marginal producers out of business.
• Taxing anything results in some inefficiencies.

Taxes, Taxes and Even More Taxes

Progressive Tax

• The more you make, the more they take.
• Those who make the least amount of money tend to pay the lowest percentage of their income in taxes. People who make larger amounts of money are taxed at a higher percentage.

Taxes, Taxes and Even More Taxes

Regressive Tax

You and I spend $100 on groceries. We each pay $8 in tax on those groceries.

Were we taxed equally?

No- My income is $25,000 per year and yours is $50,000 per year, so I have paid twice as much tax as you have, relative to our two incomes.

Yes- This is a fair tax because it only taxes what I consume and those that typically make more money consume more and thus pay more in taxes.

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Taxes, Taxes and Even More Taxes

A Proportional Tax AKA Flat Tax

-I make $10,000 per year and pay 10% in taxes to the government.

-You make $20,000 per year and pay 10% in taxes to the government.

-John Stossel makes $1,000,000 per year and pays 10% in taxes to the government.

Are you beginning to see a pattern here?

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Government Spending and Taxes

• So where does all our hard earned tax money go? Where does the federal government spend the money?
• Activity & Reading

Where Does Your Tax Money Go?

Government Spending

• State and local governments spend most of their money on…
• Education
• Health and Welfare
• Transportation
• Civilian Safety

The Federal Government Spends Most of their Money on…

• Social Security
• National Defense
• Medicare
• Interest on the debt
• Health and human services
• Transportation
• Agriculture
• Education and Training

Federal Funding

• The largest portion of the federal funding is used to promote ______________, examples of this are _____________.

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• Financial security is a ____________ goal. Do you agree with this funding priority? Why or why not?

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• The largest source of government revenue is _____________.

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• The Guns vs. Butter debate focuses on _________________________________________________.

What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”�

• Individual Federal Income Tax-

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• Accounts for approximately 45% of all taxes collected. Yet, 43% of Americans pay no Federal Income Tax.
• This is a % of most income (after allowable deductions), that ranges from 0% for very low incomes to 35% on very high incomes.
• The top 20 percent of Americans earn 53.4 percent of the total U.S. income, but pay 67.2 percent of total income tax.

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What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”�

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Individual Federal Income Tax Continued-

2012-

• 10% Tax Bracket – $0-$8,700
• 15% Tax Bracket – $8,701-$35,350
• 25% Tax Bracket – $35,351-$85,650
• 28% Tax Bracket – $85,651-$178,650
• 33% Tax Bracket – $178,651-$388,350
• 35% Tax Bracket – $388,351+

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• Reading

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What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”

• Social Security Payroll Tax/Social Insurance Tax-

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FICA- Federal Insurance Contributions Act- 1935 Accounts for approximately 37% of all taxes collected. Currently 15.3% of annual wages and salaries, half paid by workers, half by employers.

What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”

3. Corporate Income Taxes- Accounts for approximately 10% of all taxes collected. A % of corporate profits.

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• Sales Tax- A general excise tax on all products, usually 2-6% of a product’s pretax price.

The following states do not have sales tax- Alaska (local sales taxes are additional), Delaware, Montana, New Hampshire, Oregon

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What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”

• Property Tax- A % of property value over and above any allowable exemptions.

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• State Income Tax- In many states, a standard % of income after exemptions and deductions (4.6 % in Colorado).

The following states do not have an income tax-Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

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California’s income tax rates have reached an astronomical13.3% rate. Not only does California now have the most progressive income tax rates of all the states, individuals begin paying an 6% rate at $27,898 and an 8% rate at $38,727 in income, but it now surpassed Hawaii (11% top rate) as the state with the highest income tax rate in America.

What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”

• Excise Taxes, Estate and Gift Taxes, Custom Duties- Accounts for approximately 8% of all taxes collected.

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• Excise “Sin Tax”- A tax levied on the manufacture, sale, or consumption of certain (particular) non-essential goods or services, eg airline tickets, gasoline, alcohol, tobacco, etc. An excise tax is levied on a particular product in contrast to sales and use taxes, which are levied because sales occurred, rather than on the product purchased.

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• Estate- Generally, a tax on the privilege of transferring property to others after a person's death. In addition to federal estate taxes, many states have their own estate taxes.

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What Taxes Are Collected by the Government?�AKA-“The Seven Deadly Taxes”

7. Excise Taxes, Estate and Gift Taxes, Custom Duties Continued…

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• Gift- A graduated tax assessed to a donor by the federal government and most state governments when assets are gifted from one person to another. As the gift's value increases, so does the tax rate. The Economic Recovery Tax Act of 1981 permits a donor to give $10,000 a year per recipient free of the federal gift tax ($20,000 to a married couple). The gift tax is calculated on the dollar value of the asset being transferred above the $10,000 exemption level.

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• Custom Duties- A tariff or tax on the import of or export of goods.

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What Kind of Tax Is…?

• Federal Income Tax- Progressive
• Social Security-Regressive

- same % so proportional but as income varies hurts poor more since rich peak at certain #.

• Corporate Income Tax-Proportional

- same % so proportional but as income varies hurts poor more since rich peak at certain #.

• Sales Tax- Regressive

- tax burden has great impact on lower income families than wealthy.

• Property Tax- Regressive

- regressive tax on value of property they pay proportionally more of their income for property taxes than higher income

• State Income Tax- Proportional
• Excise, Estate, Gift, Custom Duties- Regressive

Overall, the U.S. Tax System is…�

• Regressive