Ch 14 - Taxes & Government Spending Objectives

Explain the two principles regarding tax fairness.

"Benefit principle" - people should pay taxes in proportion to the amount of services or benefits they receive "Ability to pay principle" - people should be taxed according to their ability to pay regardless of how many services or benefits they receive

Evaluate the costs and benefits of using credit.

As a rule, we should spend only what we earn and avoid borrowing. The "Three C's of Credit" are CHARACTER, CAPACITY, and COLLATERAL; credit report is available through three main private companies: Transunion, Equifax, and Experian, a credit score is a number calculated by the credit reporting companies based on a variety of factors.

Explain how changes in taxation can have an impact on an individual's spending and saving choices.

Government assesses taxes on individuals and firms in an economy to pay for public goods & services. Some common taxes paid by individuals include income, property, and sales tax.

Briefly describe the process of paying individual income taxes.

Pay as you earn, tax withholding by your employer based on your W4 Form, once you receive your W2 Form from your employer, you complete the required tax form and file your tax return or form by April 15th.

Explain the impact of property taxes on individuals and communities.

Property tax refers to a tax on real estate people own; If property taxes increase drastically, lower income people may no longer be able to afford the taxes on their homes, Owners of previously low value properties can lose their homes as property values rise and they are unable to afford the tax bill; Gentrification occurs when high-income property owners replace low-income property owners in an area

Identify and explain the three types of tax structures, progressive, regressive, and proportional taxes.

Proportional tax - "flat tax" ,where everyone pays the same percentage; Sales tax is an example. Progressive tax - percentage of income paid in taxes increases as income increases, Federal income taxes are an example. Regressive tax - percentage of income paid in taxes decreases as income increases. Sales tax and the tax on gasoline are examples

What is a tax?

payment to a local, state or national government

Define annual percentage rate and explain the difference between simple and compound interest rates, as well as fixed and variable interest rates.

The annual percentage rate (APR) - annual rate charged for borrowing funds, represents the yearly cost of the borrowed funds over the full term loan. A fixed interest rate on a loan will not rise or fall during the term of the loan. Lenders sometimes offer risky borrowers variable rates. If the borrower proves the ability to make the payments, the person can refinance for a fixed rate in the future. Simple interest applies only to the original amount borrowed called the principal. Compound interest applies to both the principal of the loan as well as accrued interest on the principal.

Compare interest rates on loans and credit cards from different institutions.

Wise potential borrowers shop for the best interest rates on loans. While the exact rate offered to a borrower will vary with the borrower's character, capacity, and collateral, the internet allows borrowers to compare the best rates offered by different financial institutions.

Explain how an increase in sales tax affects different income groups.

a high sales tax on food would affect poor people more than wealthy people; it takes a greater percentage of income from a low-income person than from a high-income person

sin tax

an excise tax on certain goods like tobacco or alcohol

income tax

both corporate and individual are taxes on income (Federal, State or City)

capital gains

profit from the sale of property or of an investment.

estate

death tax on total wealth

import

goods brought into country

medicare

healthcare for senior citizens

social security

income for retirees and senior citizens

corporate income tax

levy placed on profit of a firm to raise taxes.

gift

money given away

Identify examples of LOCAL (city, county) government taxes and spending.

property & sales taxes, as well as fees for services; go toward education, law enforcement, fire protection, public health, welfare, libraries, parks & recreation.

Identify examples of STATE government taxes and spending.

sales and income taxes ; state money goes to education, public safety, highways, public welfare.

FICA -Federal Insurance Contributions Act-

tax levied on employers and employees for social security & medicare

excise

tax on goods

sales tax

tax on the sale of goods and services (State and local)

unemployment tax

tax paid by employers