CH 16, pp. 446 to 462

“Death and Taxes”

• Tax return • A declaration of a person’s or business’s

income for a given year– Jan. 1 to December 31.

• Filed by mail or on-line to the Internal Revenue Service (Dept. of the Treasury)– By April 15th– On-line is faster

Progressive tax

• the higher one’s income, the higher the tax.• US method

Payroll tax

• taxes for Medicare and OASDI that are taken from the paycheck.– OASDI: Old Age, Survivors, and Disability

Insurance.

Regressive tax

• taxes levied at a flat rate.• Are harder for lower-income individuals to pay– OASDI– Medicare– Sales tax– Sin taxes

Estate tax

• tax levied on the estate of one who dies.• Aka “death tax”• Since 2001 the exemption amount has jumped from

$650,000 to $5.43 million in 2015• A one time gift tax that can total up to $5.43 million.

Can be given tax free and counts against the estate tax total.

• 99.85 % of estates owe no estate tax• Most progressive tax in the US tax code.

Gift tax

• tax on a large money gift given by a person to another.

• Rich would hand out their money to caretakers, calling them friends or family, to avoid taxes.

• Can give up to $14,000 a year to any number of individuals that is tax free.

Custom duty

• tax on all goods, imports and souvenirs, brought in from abroad.

• Aka, tariffs, import duties, imposts.• There is an amount of foreign souvenirs one

can bring in without paying tax.• $800 worth of goods per person.

Excise tax• a tax paid by the manufacturers of certain goods, before sale.

– Gasoline– Oil– Tires– Tobacco– Liquor – Wine– Beer– Firearms– Telephone services– Airline tickets– Gambling earnings

• Aka: hidden taxes (added into price by manufacturer), luxury taxes, sin taxes

Interest

• a charge for borrowed money.• Many federal fees and taxes are invested and earn

large funds for government use.– Canal tolls– Passport fees– Patents– Trademarks– Veteran’s life insurance policy– Sale or lease of public land– Sale of surplus property– Fines imposed by federal courts

Deficit

• the yearly shortfall between government income and spending

• Causes government to borrow to make up the difference.

Public debt

• all the government’s debts.• Aka: national debt• Includes all the deficits since approximately

the 1930s• Includes all the interest on borrowing to meet

the deficits.• 18.1 Trillion dollars

Surplus

• when the government spends less than it makes in revenue in one year.

• A rare surplus occurred from 1998-2001– Good economy– Congress passed a bill to forbid deficit spending

• Stopped by– Bush tax cuts – Costs of Afghanistan and Iraq wars.

Entitlement

• mandatory benefits to all Americans who qualify.– OASDI– Medicare– Medicaid– Disability– Unemployment insurance– Veterans pensions and benefits– Food stamps

Controllable spending

• Congress and the president can decide each year on what will/can be spent in the federal budget.– National parks– Highway projects– Education aid– Military hardware– Civil service pay

• Aka: discretionary spending

Uncontrollable spending

• Congress and the president cannot decide each year on what will/can be spent in the federal budget.

• Aka: mandatory spending• 80% of government spending is this.– Interest on the public debt– Social security benefits– Food stamps

• Congress can change eligibility standards and benefit amounts.

Continuing resolution

• allows the affected agencies to continue to function when Congress has failed to pass an appropriations bill.

• On the basis of the previous year’s appropriation.• signed by the president.• Has been used often over the past few years as GOP refuses

to pass any long-term bill that does not have what they consider fiscal responsibility (cuts deficit, cuts national debt).

Image, 446

• What is the speaker’s attitude toward government?

• That the government is big, powerful, and domineering (bullying) over its citizens.

Image, 447

• Where does the Federal Government get the power to tax imports?

• From the Constitution,– Allows taxes on imports– Taxes on exports prohibited

Image, 448

• From which of these sources did the revenues collected increase by the greatest percentage from 1990 to 2006?

• From corporate income taxes

Image, 449

• How much would this taxpayer owe with a taxable income of $37,500, which is exactly half the income in the example?

• $5,000

Image, 451

• Explain why, other than to raise revenue, the Federal Government might require duck hunters to pay an annual fee?

• To regulate the hunting of migratory birds.– If the fee is expensive, fewer people will hunt.

• Conservation efforts

p 455

• How do Greenspan’s thoughts about “mutual trust” and “fair dealing” apply to what you have learned about taxes in this chapter?

• The taxation system relies on mutual trust between the government and the people.

Image, 456

• Why is the debit so much larger than the deficit?

• Because the debt includes– money borrowed– Accrued interest

Image, 459

• Which of these three categories is an example of controllable spending?

• Defense

Image, 460

• Questions:• A. Which of the executive departments now

spends the largest amount of money each year?

• The Department of Health and Human Services

• B. Which executive department spends the least?

• The Department of Commerce

Image, 462

• What is the cartoonist’s view of the future of Social Security?

• The cartoonist implies that Social Security will run out in the near future.