Economics 101909 http:students'resa'netmilewski

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Economics 10/19/09 http//students.resa.net/milew
ski

• OBJECTIVE Demonstration of Chapter6 and begin
  examination of taxes.
• I. Administrative Stuff
• -attendance
• -distribution of test
• II. Chapter6 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
• NOTICE Journals 13-22 Due Tomorrow!

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Chapter9

• We will cover sections (1-3)
• Section4 can take a long walk off a short pier.
• Journals 13-22 Due Tomorrow!

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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.

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Growth of Taxes
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Economic Impact of Taxes

• Taxes and other govt revenues influence the
  economy.
• It affects resource allocation, consumer
  behavior, and the nations 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.

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Types of Taxes
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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
  mannerthey buy less.

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Corporate Tax Rates
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Criteria for Effective Taxes

• Some taxes will always be needed, so we want to
  make them as effective as possible.
• To do so, taxes must meet criteria they must be
  equitable, simple, and efficient.

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Quintiles

• Minimum household incomeLowest Quintile
  0Second Quintile 17,900Middle Quintile
  30,500Fourth Quintile 45,200Highest Quintile
  67,400Top 1 307,500

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Simple v. Complex Taxes

• Individual income taxthe tax on peoples
  earningsis a prime example of a complex tax.
• Sales taxa general tax levied on most consumer
  purchasesis much simpler.

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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.

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Economics 10/20/09 http//students.resa.net/milew
ski

• 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. Quiz13
• III. Return of Chapter6 Test
• IV. Journal 22 pt.B
• -notes on federal taxes
• V. Econ U.S.A. episode6
• -Fiscal Policy
• NOTICE Journals 13-22 Due!!

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Federal Taxes

• The federal government collects taxes from a
  number of sources.
• Individual Income Taxes
• Social Security Taxes
• Corporate Income Taxes
• Misc. Other Revenues

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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 govt has relied heavily
  on the individual income taxthe tax on peoples
  earningsto finance its operations
• The federal government collected about 48 of its
  total revenue from taxes on peoples earnings

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Federal Government Revenue by Source
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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
  employees 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

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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.

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Income Tax is Progressive
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Single Individual Taxes
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Economics 10/21/09 http//students.resa.net/milew
ski

• 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

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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

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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.

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Excise Taxes

• excise tax a tax on the manufacture or sale of
  selected items, such as gasoline and liquoris
  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

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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

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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
  taxesthe larger the estate or gift, the higher
  the tax rate

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Economics 10/22/09 http//students.resa.net/milew
ski

• OBJECTIVE Learn how to write.
• I. Administrative Stuff
• -attendance
• II. School wide writing project
• -Directions vary by hour.

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Economics 10/23/09 http//students.resa.net/milew
ski

• 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 Chapter9

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Sources of State Local Revenue
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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

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Paycheck
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Sources of State Local Revenue
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Budget of the State of Michigan

• The size of Michigan's overall budget is 42.4
  billion (fiscal year 2007).

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Michigan Budget 2007
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139068--F,00.html
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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

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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 Oregonthe other four states without a
  general sales tax

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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 faceand 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

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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

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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 assessorsthe people who
  assign value to property for tax purposesto
  assess the value of a few big-ticket items like
  buildings

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