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REVIEW What is the fundamental economic problem? What are the requirements for something to be scarce? What are the three questions that all societies must face? – PowerPoint PPT presentation

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Title: Review


1
Review
  • What is the fundamental economic problem?
  • What are the requirements for something to be
    scarce?
  • What are the three questions that all societies
    must face?
  • What are the four factors of production?
  • What are the three major economic systems? Who
    answers the questions in each?
  • What type of economic system is the U.S.?
    Explain?
  • What are fixed costs?
  • What are variable costs?
  • Pepsi and coke are ___________________ goods.
    Peanut butter and jelly are ____________ goods.
  • What are the three major types of unemployment?
    Explain each.

2
Taxes
  • The source of government revenue

3
What does this mean?
4
Why tax?
  • Source of government revenue
  • What does the Government spend money on????
  • Public Goods (Nat. Defense, Schools, Parks,
    Roads, Social Programs, Police, Firemen)
  • Repayment of debt with interest
  • Research and Development (technology)
  • Entitlements Medicare, Medicaid, and Social
    Security

5
Where does all the money go?
  • http//www.nytimes.com/interactive/2012/02/13/us/p
    olitics/2013-budget-proposal-graphic.html

6
What are the Types of Taxes?
  • Proportional Taxes
  • A tax with a constant paid regardless of income
  • Flat tax
  • Progressive Taxes
  • A tax where the paid in taxes increases as
    income increases
  • U.S. Personal Income Tax
  • Regressive Taxes
  • The lower your income the higher you pay in
    taxes
  • Sales Tax

7
Proportional, regressive, or progressive?
8
sales tax two families?
  • Family of 4 with income of 100,000 annually
  • If they save 30 of their income, how much do
    they spend on consumer goods (assume they spend
    the rest for purposes of simplicity)?
  • 70,000
  • Suppose there is a 5 sales tax how much do
    they pay in taxes
  • .05 x 70,000 3,500
  • What percentage of their total income do they pay
    in taxes?
  • 3,500/100,000 x 100 3.5
  • Family of 4 with income of 20,000 annually
  • At this income level, how much will this family
    be able to save?
  • How much do they spend on consumer goods?
  • 20,000
  • Suppose there is a 5 sales tax how much do
    they pay in taxes
  • .05 x 20,000 1,000
  • What percentage of their total income do they pay
    in taxes?
  • 1,00/20,000 x 100 5

9
Who should pay taxes?
10
Principles of taxation Who should pay?
  • Ability to Pay Principle
  • A citizen will pay more tax if he or she is able
    to pay more
  • Income Tax- Wealthy more taxes, impoverished pay
    less
  • Benefit Principle
  • Citizens who will benefit from the use of the tax
    will pay for it.
  • Excise taxes on gas go to fund road work and
    other projects
  • Sales tax / Property tax in an area go to fund
    schools in that area

11
Criteria for Effective Taxes
  • Equity-
  • Tax must be fair and not discriminate or target
    individuals based on race or gender or age
  • Simplicity
  • The Tax must be some what easy and understandable
    for citizens
  • Tax loopholes??
  • Efficiency
  • The tax must generate an acceptable flow of
    income for the government.

12
Impact of Taxes
  • Generate Income
  • Adjust Behavior How?
  • Sin Tax- high tax placed on a product that has is
    viewed negatively in society
  • Tobacco, Liquor, fast foot
  • Allocate Resources
  • Taxes change the price of products and will
    change the QD of the product and the S of the
    product

13
Impact of Taxes
  • Productivity and Growth
  • High taxes will stunt economic growth
  • Low taxes will limit ability of government to
    function
  • WHY?

14
Federal Tax System
  • Income Tax-
  • Personal
  • Corporate
  • Capital Gains Tax
  • Excise Tax- Flat tax placed on the production and
    sale of specific items
  • Tariff- Tax on imported goods

15
Federal Tax System
  • Payroll deductions- taxes that automatically come
    out of your pay check
  • FICA Taxes
  • Medicare and Social Security Taxes
  • The Internal Revenue Service (IRS)
  • Federal Agency that collects taxes
  • Tax Returns
  • Tax Evasion

16
(No Transcript)
17
State and Local taxes
  • Property Tax
  • Sales Tax
  • Splost

18
The State Dollar-
Where It Comes From
Property Tax 32
Individual Income Tax 22
Alcoholic Beverages Sales Tax 1
Tobacco Product Sales Tax 1
Motor Vehicle License 2
Corporate Income Tax 3
General Sales Tax Gross Receipts 25
Motor Fuel Sales Tax 4
All Other 10
19
The State Dollar-
Where It Goes
Education 30
Social Services 21
Insurance Trust Expenditure 7
Transportation 7
Government Administrative 4
Utility Expenditure 7
Interest on General Debt 4
General Expenditure 5
Public Safety 8
Environment and Housing 7
20
What Tax am I????
  • http//www.youtube.com/watch?vlafDykKJ_9I
  • The only reason I exist is to get people to stop
    people using specific product.
  • The I take gets bigger as you make more money.
  • I am a special tax, I am not on everything just
    one specific product, the product is good to use
    and the money I generate goes to specific cause
    like roads or education.
  • I am a constant, as your income goes up or down I
    stay the same .
  • I am everywhere, where ever there is a market I
    am there.
  • If you are making legal money I get a cut.
  • If your income is big then I am small, and if
    your is small I seem larger than life.
  • If you want something from over the seas it has
    to get past me.
  • I am the basic economic problem that everyone
    faces.
  • When someone does not pay their taxes they have
    committed ________
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