Fiscal Policy
What are the criteria for an effective tax?
-Equity - fairness. But what is considered fair is subjective. Tax loopholes than businesses can use to not pay taxes should be avoided. -Simplicity - written so that payers can understand. Laws should be kept simple so that payers can understand. Don't have so many individual taxes. -Efficient - Easy to administer. Successful at generating revenue.
Pennsylvania Revenue
1) Income tax (proportional 3.07%) 41.2% 2) Sales + Uses Tax (6.0%) 31.5% Corporate net income and cigarette taxes The government will also fund individual states
Pennsylvania Expenditures
1) PreK-12 education (public schools, but also private a bit with textbooks) 37.7% 2) Medical Assistance + Long-term living (elderly, disabled, etc.) 21.3% 3) Other Health and Human Services 16.8% Higher education (state colleges) and criminal justice (jails, etc.). If you don't invest in education, spending on criminal justice will likely increase.
Federal Government Expenditures
1) Social Security/Medicare 41% 2) Social programs 22% 3) National defense, veterans, foreign affairs 20% 4) Physical, human and community development (transportation, environmental programs)
Medicare tax percentage
1.45% for employee and employeer
Who pays for the medicare taxes?
1.45% paid by employee and 1.45% paid by employer. There is no cap on this tax. If you are self-employed you have to pay both taxes.
Sales and Uses Tax for PA
6.0%
Social Security tax percentage
6.2% for employee and employeer
Who pays for the social security taxes?
6.2% paid by employee and 6.2% paid by employer. If you are self-employed you have to pay both taxes (12.4%). Social Security has a cap at $28,400. Money that is paid to social security is not saved. It is being used right now for current users.
When are taxes due?
April 15th
What are regressive taxes?
As income goes up, % in tax goes down. Take a larger share of the income of low-income groups than from those who have a higher income.
What are progressive taxes?
As income goes up, % in taxes goes up. These require people with higher income to pay a larger % of taxes than lower income people.
What are the two principles of taxation?
Benefit Principle and Ability to Pay Principle
Local Government Expenditure
Education
Federal Government income + expenditures
Income: 1) Personal Income Tax - 16th amendment, progressive income tax. Most cases payroll withholding system 40% 2) FICA/Payroll Taxes - social security, medicare (for elders) 29% 3) Borrowing to cover deficit - borrows through bonds. Can cause issues in the future since they need to be paid off 17% 4) Corporate income taxes - tax on profit of corporations, progressive tax 5) Excise, customs, estate, gift, and miscellaneous taxes
What are two types of spending?
Mandatory, required spending, and entitlements, spending that people are entitled to, such as social security. Aging population = more social security spending
Local Government Revenue
Property tax - tax you pay for the and you own.
Fiscal policy
Tax and spend policies of the 3 levels of government in the US
What are proportional taxes?
Tax in which everyone pays the same percentage regardless of their income
What is the Ability-to-Pay principle?
Taxed on the ability to pay no matter the benefits. People with higher incomes pay more than lower incomes. (But is this considered fair?)
What is 'freedom day'?
When you finally work enough to pay for your taxes.
What are the 3 levels of government in the US?
federal, state, local
What are the types of taxes?
progressive, regressive, proportional
What is the benefit principle?
those who benefit from government goods and services should pay in proportion to the amount of benefits they receive ex: gasoline has a tax. The revenue from this tax is used to pave roads, which you would then drive cars on. This form has its drawbacks. It is hard to determine who all benefits. What about people with electric cars are bicycles? They don't pay the gasoline tax. Also, what about programs such as foodstamps? The people who qualify for such programs don't pay - they are poor. Do we tax the poor for using foodstamps?
