• US Federal Tax Rates: (only 3 % of Americans make over $250,000)
• Add 10 -15 % more depending on which state you work in
• Gross income: How much you earn
• Net income: how much you keep
• Net income = gross income - gross income*tax
• For example: Mr. Jones made $37,500 last
• Net income = $37,500 - $37,500(.25)
• Net income = $37,500 - $9,375 = $28,125
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 -
• Net income = $37,500 - $9,375 =
• If Mr. Jones paid $10,375 in taxes
in 2013, what happens after he
• Income Tax
• % changes based on
• The more you make, the
higher your tax.
• Common in USA & EU
• Smaller % taken the higher your
• Sales tax
• For example: 5% tax,
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
• Property Tax
• Tax on something
you own (car, house,
• For example:
– 5% property tax rate
• 100,000 X .05 =
$5,000 property tax
Proportional Income Tax ?
• Tax on a household
• % stays the same
• “flat tax”
• For example: 5%
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
• Def. Social welfare programs that people
are “entitled to” if they meet certain
requirements. Congress must fund these
• Entitlements are very expensive because
Congress cannot control how many people
receive the benefits.
– Ex. Social Security (#1spending), Medicare,
Medicaid, Food Stamps, etc.
• 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
• Balanced Budget: when the government
collects the same in revenue (taxes) as it
• Budget Surplus: When the government
takes in more revenue than it spends.
• Budget Deficit: When the government
spends more than it takes in.