Principles of Taxation

Claire Telleen and Katie Starcher

Objectives

Explain the purpose of taxation

Describe taxes paid by U.S. consumers
Explain principles of tax fairness
Identify major government spending
categories

Purposes of Taxation
Tax- a required payment to a local, state, or
national government

To fund public goods and services

To influence behavior
To stabilize the economy
To redistribute income

Income Tax

Income you earn from a job or other

sources, such as interest in a savings
account, is subject to income tax
What is it used for?
o Social Security, Military, Hospitals, etc.

Social Security Taxes

Based on wages earned and are withheld

from paychecks
Goes to Social Security trust fund and is used to pay for
retirement benefits, disability benefits, and benefits for
widows and widowers

Sales Tax

A direct tax on consumption imposed by

many state and local governments when you
purchase goods or services

Excise Taxes

A tax on the manufacture or sale of certain

goods and services
o ex: motor fuel, alcohol, tobacco, firearms,
etc.

Property Taxes

Based on the value of land and buildings

owned
Main source of revenue for local
governments

Estate and Gift Taxes

Estate Tax- based on the value of a persons

property after his or her death
Gift Tax- may be charged to someone who
gives a gift exceeding a certain dollar value

Business or License Taxes

Needed to drive a car, own certain pets,

hunt, and fish
Paid by members of some professions to
have the right to work
o ex: doctors, lawyers, teachers, electricians

Customs Duties and Tariffs

Placed by the federal government of goods

imported from other countries

Taxes and Fairness

Benefit Principle- people who benefit from a

public service should pay for it

Ability-to-pay Principle- more taxes should

be paid by people who can afford to pay
more

Tax Rates
flat tax- the percentage that is charged in a tax
-is the same for everybody

gradual tax- different rates are applied to

taxes

-People with higher income are taxes more and people

with lower income are taxed less

Relationship of Taxes to Income

proportional tax- takes the same percentage

out of everyones income
progressive tax- takes a larger percentage of
the income of high-income people
regressive tax- takes a larger percentage of
the income of low-income people

How Taxes are Spent

Elected officials in the government decide

how to spend taxes

o ex: Social Security, health care

State taxes go to:

o education, transportation, public safety, etc.
of state taxes go to education

Work Cited

http://taxes.about.com/od/payroll/a/Social-Security-Taxe
s.htm
http://taxes.lovetoknow.com/federal-income-tax/what-is
-income-tax-used
https://turbotax.intuit.com/tax-tools/tax-tips/Taxes-10
1/What-Are-State-Sales-Taxes-/INF14397.html
http://wordnetweb.princeton.edu/perl/webwn?s=propert
y+tax
http://www.irs.gov/Businesses/Small-Businesses-&-Self
-Employed/Estate-Tax