1.

How much money do

you want to be earning (per
year) when you are 30?
2. What percentage of your
income do you think you
have to pay to the
government in taxes?
 Taxation
“In this world nothing can be said to be certain,
except death and taxes.”
Benjamin Franklin
 In reality…
• US Federal Tax Rates: (only 3 % of Americans make over $250,000)

• Add 10 -15 % more depending on which state you work in

 Net Income

• Gross income: How much you earn

• Net income: how much you keep

• Net income = gross income - gross income*tax

rate
• For example: Mr. Jones made $37,500 last
year.
• Net income = $37,500 - $37,500(.25)
• Net income = $37,500 - $9,375 = $28,125
World Tax Rates

http://www.greenbacktaxservices.com/blog/
countrys-tax-rate-compare-around-world-
infographic/
 What are “Good Taxes”?
• According to Adam Smith:
• Simple to understand
• Don’t provide negative incentives
• Avoid loopholes
• IRS manual – 2,500,000 pages
– (4 X size of the Bible)
 Income Tax in USA

• IRS – tax collection agency in USA

• Taxes are deducted throughout year
• Every citizen must file every year by:
• If you paid more during the year then you
need to: you get a refund
• If you paid less during the year then you
need to: you must pay the difference
 Taxes: For Example
• For example: Mr. Jones made
$37,500 last year.
• Net income = $37,500 -
$37,500(.25)
• Net income = $37,500 - $9,375 =
$28,125

• If Mr. Jones paid $10,375 in taxes

in 2013, what happens after he
files?
 Progressive Tax
• Income Tax
• % changes based on
income
• The more you make, the
higher your tax.
• Common in USA & EU
 Regressive Tax
• Smaller % taken the higher your
income
• Sales tax
• For example: 5% tax,
$25,000/year w/$10,000
consumption pays: 10,000 X .05
= $500, or 2% of total income
• $50,000/year w/$15,000
consumption pays: 15,000 X .05
= $750, or 1.5% of total income
 Proportional Tax
• Property Tax
• Tax on something
you own (car, house,
boat, etc.)
• For example:
$100,000 home
– 5% property tax rate
• 100,000 X .05 =
$5,000 property tax
 Proportional Income Tax ?
• Tax on a household
income
• % stays the same
• “flat tax”
• For example: 5%
tax, $25,000/year
or $100,000/year
 Other Taxes
1. Excise Tax: tax on the sale or production
of a good. Often used to discourage use
of the item, called a “Luxury” or “Sin” tax.
Ex. Cigarettes, Alcohol, Gas, Telephone
2. Estate Tax: Tax on the total value of
money and property of a person who has
died. Only taken on estates over $1.5
million. Opponents labeled it as the
“Death Tax” because they believe it is
unfair to wealthy, successful people.
 Other Taxes (cont.)
3. Gift Tax: Tax on money or property given
as gift over $10,000 per year.
4. Import Taxes: known as tariffs, taxes on
goods entering the U.S. Used to raise
price of foreign goods and help American
companies.
 Entitlement Programs
• Def. Social welfare programs that people
are “entitled to” if they meet certain
requirements. Congress must fund these
programs.
• Entitlements are very expensive because
Congress cannot control how many people
receive the benefits.
– Ex. Social Security (#1spending), Medicare,
Medicaid, Food Stamps, etc.
 Discretionary Spending
• Def. Spending category where
government can choose how to fund.
– Ex. Defense (#1 discretionary spending),
education, research, student loans,
technology, law enforcement, national parks
and monuments, the environment, housing,
transportation, disaster aid, foreign aid, farm
subsidies, etc.
 Surplus/Deficits
• Balanced Budget: when the government
collects the same in revenue (taxes) as it
spends.
• Budget Surplus: When the government
takes in more revenue than it spends.
• Budget Deficit: When the government
spends more than it takes in.
Does the US have a
good tax system?