Title: Review
1Review
- 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.
2Taxes
- The source of government revenue
3What does this mean?
4Why 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
5Where does all the money go?
- http//www.nytimes.com/interactive/2012/02/13/us/p
olitics/2013-budget-proposal-graphic.html
6What 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
7Proportional, regressive, or progressive?
8sales 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
9Who should pay taxes?
10Principles 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
11Criteria 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.
12Impact 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
13Impact of Taxes
- Productivity and Growth
- High taxes will stunt economic growth
- Low taxes will limit ability of government to
function - WHY?
14Federal 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
15Federal 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
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17State and Local taxes
- Property Tax
- Sales Tax
- Splost
18The 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
19The 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
20What 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 ________