Taxation Basics: Revenue, Income, and Equity
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Revenue
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Income.
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Progressive Tax
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A tax in which the percentage paid increases as income increases.
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Regressive Tax
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A tax in which the percentage paid decreases as income increases.
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Tax Base
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Income, property, good, or service that is subject to tax.
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Gives the U.S. government right to collect taxes
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US constitution
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Equity
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Tax is paid equally by everyone.
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What happens to the % of an income that is taxed when income rises and the tax is proportional?
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% of taxation remains the same
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How would you describe a tax that is assessed according to the benefits-received principle?
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Those who receive the benefits the tax provides are the people who pay the tax.
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What determines the incidence of a tax?
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The elasticity of demand of the product taxed.
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Medicare
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National health insurance program for people over age 65.
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Deduction
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An amount that can be subtracted from income when filing taxes.
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Withholding
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Taking out a part of income as it is earned for taxes.
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Tax Return
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A form that the taxpayer files with the government.
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Tariff
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Tax on foreign goods brought into the U.S.
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What is the main purpose of federal taxes on tobacco and alcohol products?
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To discourage the use of these products.
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Estate tax vs. Gift tax
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Estate tax is tax on money or property of someone who has *died*. Gift tax is tax on money or property given from one *living* person to another.
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Why does the federal government collect income taxes in installments rather than waiting until the end of the year?
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It is more convenient for the government and taxpayers to collect in installments.
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How much of the federal government's income comes from individual income taxes?
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47%
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How is the federal income tax a progressive tax?
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The higher the income a person has, the higher the *percentage* that person pays in tax.
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Entitlements
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Social welfare programs from which people benefit if they meet certain eligibility requirements.
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Discretionary Spending
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Money lawmakers have a choice about spending.
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Social Security
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Benefits paid to retired and disabled workers.
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Mandatory Spending
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Money lawmakers are required to spend on certain programs.
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Approximately what % of the national budget is spent on defense?
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15%
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Medicare v. Medicaid
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Medicare is for people over 65 while Medicaid is for low-income families.
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Largest category of federal spending
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Social Security
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What is one reason the government has only limited control of its spending?
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When criteria have been set for a program, there is no control of how many people will qualify.
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Why are Social Security and Medicare spending expected to increase further in the near future?
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The baby boomer generation will qualify for both programs.
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Balanced Budget
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Spending = Revenue
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Capital Budget
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Spending for major investments (ex: roads)
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Real Property
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Assets such as land and buildings
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Operating Budget
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Spending for day-to-day expenses
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Personal Property
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Assets such as furniture, boats, and jewelry
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Major source of revenue for most state governments
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Sales and individual income taxes
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Main sources of revenue for local governments
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Property taxes
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How does the concept of a balanced budget apply to state government?
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Only the operating budget must be balanced.
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For which expense do state governments provide financial help to their local governments?
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Public school systems
