Transcript Taxes - FCEE

Deficits, Surpluses, and the National Debt
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Tax his land,
Tax his bed,
Tax the table
At which he's fed.
Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.
Tax his cow,
Tax his goat,
Tax his pants,
Tax his coat.
Tax his ties,
Tax his shirt,
Tax his work,
Tax his dirt.
Tax his tobacco,
Tax his drink,
Tax him if he
Tries to think.
Tax his cigars,
Tax his beers,
If he cries, then
Tax his tears.
Telephone State &
Local Tax
Telephone Usage
Charge Tax
Utility Taxes
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Tax his car,
Tax his gas,
Find other ways
To tax his ass
Tax all he has
Then let him know
That you won't be done
Till he has no dough.
When he screams and hollers,
Then tax him some more,
Tax him till
He's good and sore.
Then tax his coffin ,
Tax his grave,
Tax the sod in
Which he's laid.
Put these words
upon his tomb,
" Taxes drove me to my doom..."
When he's gone,
Do not relax,
Its time to apply
The inheritance tax.
Utility Taxes
Vehicle License
Registration tax
Vehicle Sales Tax
Watercraft
Registration Tax
Well Permit Tax
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Accounts
Receivable Tax
Building Permit
Tax
CDL license Tax
Cigarette Tax
Corporate Income
Tax
Dog License Tax
Excise Taxes
Federal Income Tax
Federal
Unemployment Tax
(FUTA)
Fishing License
Tax
Food License Tax
Fuel Permit Tax
Gasoline Tax (42
cents per gallon)
Hunting License
Tax
Inheritance Tax
Gross Receipts Tax
Inventory Tax
IRS Interest
Charges IRS
Penalties (tax on
top of tax)
Liquor Tax
Luxury Taxes
Workers Comp Tax
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Marriage License
Tax
Medicare Tax
Personal Property
Tax
Property Tax
Real Estate Tax
Service Charge Tax
Social Security Tax
Road Usage Tax
Sales Tax
Recreational
Vehicle Tax
School Tax
State Income Tax
State
Unemployment Tax
(SUTA)
Telephone Federal
Excise Tax
Telephone Federal
Universal Service
Fee Tax
Telephone Federal,
State and Local
Surcharge Taxes
Telephone
Minimum Usage
Surcharge Tax
Telephone
Recurring and
Non-recurring
Charges Tax
Flat Tax on Income: same % of income, different amounts, so Proportional
Flat Tax on Products: same amount, different % of income, so Regressive
Marginal Tax Rates
35%
33%
28%
25%
15%
10%
Single - no
tax on 1st
I only have
to pay the
FICA tax.
$7,825
0
Standard Deduction
[$5,350-dependent]
10% 15%
28%
25%
33% 35%
$7,825 $32,550 $78,850 $164,550 $357,700 $357,700+
[7,825-single]
[$11,200-HH]
[$15,650-married filing jointly]
Our Progressive Tax System Is Like A Layered Cake
35% over $357,700
33% up to 357,700
28% up to $164,550
25% up to $78,850
15% up to $32,550
10% up to $16,050
No tax on 1st $8,025
Proportional – takes same 20% [not amount] from all income groups
20%
Example: Medicare – 1.45% on all income earned.
$30,000 $40,000
$50,000
$100,000
Pay $10,000
Pay $20,000
[So, not same amount but same %, 20%]
Take that, you
“low incomer.”
30%
20%
Example: Sales Tax
I’m a “low
incomer.”
10%
$30,000
$40,000
$50,000
Flat Tax on Income: same % of income, different amounts, so proportional.
Flat Tax on Product: same amount, different % of income, so regressive.
Toll Road($1 per day) What kind of
$10,000
$50,000 taxes are these?
$200
$200
2%
.4%
Flat Tax on Cigarettes [Excise][$1.41 cents pack]
[1 pack day]
$10,000
$515
5%
[1 pack day]
$100,000
$515
.5%
Addicted
State 6.25% Excise Tax on Two Identical $20,000 Autos
BO
HO
$10,000
$100,000
$1,250
$1,250
12.5%
1.25%
Flat Tax on Income: same % of income, different amounts, so Proportional
Flat Tax on Products: same amount, different % of income, so Regressive
Property Tax of 2.5% on $100,000 Houses
$25,000
$50,000
[100,000 house]
$2,500
10%
[$100,000 house]
$2,500
5%
$100 Spent On The Lottery
$20,000
$100,000
[$100 Lottery]
[$100 Lottery]
5%
.1%
I played
the lottery.”
“The lottery tax is a voluntary
regressive tax on morons.”
What about the .20 a gallon gasoline tax?
So – all of these taxes were regressive.
TAX RATE
TAX RATE
State Excise Tax on Cigarettes
State
(Cents per pack) Rank
State
(Cents per pack) Rank
Alabama(1)
16.5
47
Nebraska
64
24
Alaska
200
4
Nevada
35
39
Arizona
200
4
New Hampshire
52
32
Arkansas(20)
59
26
New Jersey
258
1
California
87
19
New Mexico
91
18
Colorado
20
43
New York (1)
150
5
Connecticut
200
3
North Carolina
30
45
Delaware (3)
24
41
North Dakota
44
34
Florida
33.9
40
Ohio
55
29
Georgia
37
36
Oklahoma
23
42
Hawaii (30
130
7
Oregon
128
8
Idaho
57
27
Pennsylvania
100
12
Illinois (1)
98
17
Rhode Island
246
2
Indiana
55.5
28
South Carolina
7
51
Iowa
36
37
South Dakota
53
31
Kansas
29
20
Tennessee (1)(2) 20
48
Counties
may impose
an
additional141
tax on a pack11of
Kentucky
(2) & cities
30
46
Texas
Louisiana
36
37 taxUtah
cigarettes. Also,
the federal
is 39 cents.69.5
NYC has an 23
Maine
200
3
Vermont
119
additional $1.50
for a total
cigarette
pack price
of $7.50.10
Maryland
100
12
Virginia (1)
30
47
Massachusetts
151
4
Washington
203
3
30 states have increased cigarette taxes since January 1, 2002 some twice.
Michigan
200
5
West Virginia
55
29
Minnesota
48
33
Wisconsin
77
21
Every 10%
youth smoking
by
Mississippi
18 increase
49reduces
Wyoming60
25
Missouri
(1)
17
50
Dist.
Of Columbia 100
12
7%
and
adult
smoking
by
2%.
Montana
170
6
U.S. Median
90
Facts & Figures:
Causes:
Wars
Recessions
Tax Cuts
No political will
Financial Price Of War
Total
Cost per
Conflict
Cost
Person
WW1
$125 bil. $2,489
WWII
$600 bil. 20,388
Korea
336 bil.
2,266
Vietnam
494 bil.
2,204
Gulf War I
76 bil.
306
Gulf War II 438 bil.*
536
* Cost over $12 billion a month
The War in Iraq has cost $16,000 per family.
91%
91% on income over $200,000
35%
2008
Medicare tax – 1.45% for an individual [2.9% for
self employed] for every dollar earned.
Harrison Ford – received $25 million for 20 days
work on a movie. 1.45% of $25 million = $362,500
x 2 = $725,000 medicare tax. [Over his 35 years
on the Big Screen, his films grossed over $10 bil.
Jim Carrey – gets $20 million per movie, so his tax is
$580,000. [1.45% of $20 million = $290,000 x 2 = $580,000.]
Top Marginal Tax Rates
[91% for dollars over $200,000]
Year
Tax Rate
1900
No Tax
1914
1% [over $3,000]
[Only 1 in 270 paid this tax at all]
1930
30%
1940
81%
[1 in every 32 was now paying taxes]
[1 in every 3 was paying taxes]
1943 *Paycheck withholding
(by
the boss) was launched to stop cheating.
1950
1970
[over $200,000]
91%
70%
[Everyone was paying with taxable Y]
1980
2000
2008
70%
39.6%
35%
Do the rich pay their fair
share of the taxes?
And why is it the rich who
always benefit from tax cuts?
Top 1%[1,286,000] ($328,000+) paid 37%
of all
Ave. Tax Rate
taxes–average 24%
Top 5%[6,430,000] ($137,000+) paid 57% - average 21%
Top 10%[12,861,000] ($99,000+) paid 68% – average 18.5%
Top 25%[32,152,000] ($60,000+) paid 85% – average 15%
Top 50%[64,305,000] ($30,000+) paid 97% – average 14%
Bottom 50%[64,305,000] (<$30,000) paid only 3.3% of all taxes.
There 469 billionaires.[793 in world] There are 9.2 million
millionaires. There are 40 millionaires in the U.S. Senate.
97%
100% 134 million filed tax returns but
80%
Our average tax rate was 14%.
70%
57%
60%
$137,000 +
37%
$328 000 +
40%
30%
20%
10%
Top
1%
Top
5%
$99,000 and over
68%
Top
10%
85%
$30,000 and over
only 90 million paid any
taxes.
$61,000 and over
90%
3.3%
Top
25%
Top
50%
Bottom
5%
Suppose that every day, ten men go out for beer and the bill for all ten comes
to $100. If they paid their bill the way we pay our taxes, it would go like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and
seemed quite happy with the arrangement, until one day, the owner threw them
a curve. 'Since you are all such good customers, he said, 'I'm going to reduce
the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first
four men were unaffected. They would still drink for free.
But what about the other six men - the paying customers? How could they divide
the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from
everybody's share, then the fifth man and the sixth man would each end up
being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the
same amount, and he proceeded to work out the amounts each should pay.! And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings)
The ninth now paid $14 instead of $18 (22% savings)
The tenth now paid $49 instead of $59 (16% savings).
Each of the 6 was better off than before. And the first 4 continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
'I only got a dollar out of the $20,'declared the sixth man. He pointed to the tenth
man,' but he got $10!‘
'Yeah, that's right,' exclaimed the fifth man. 'I only saved a dollar, too. It's unfair that
he got ten times more than I!‘
'That's true!!' shouted the 7th man. 'Why should he get $10 back when I got only two?
The wealthy get all the breaks!'
'Wait a minute,' yelled the first four men in unison. 'We
didn't get anything. The system exploits the poor!'
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had
beers without him. When it was time to pay the bill, they discovered something important.
They didn't have enough money between all of them for even half of the bill!
And that is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction. Tax them
too much, attack them for being wealthy, and they just may not show up anymore. In fact,
they might start drinking overseas where the atmosphere is somewhat friendlier.
1. Taxes – mandatory payments made to the
government to cover the costs of public goods and
services (like national defense and highways).
2. Tax Rate – percent of income taken by the government.
The Two Roles of Taxes
A. Finance government operations and functions
[regulations-F.D.A., public goods (highways),
transfer payments, government & military pensions.]
B. Influence economic behavior of individuals & firms.
1). Excise taxes (tobacco, alcohol & gasoline) raise revenue
and discourage their use. Canada quadrupled the tax on
cigarettes and reduced consumption by one-third.
Three Tax Bases
1. Income
2. Wealth
3. Consumption
3. Progressive Taxes - takes a larger percent of income
as income rises [takes more from rich people].
Federal Income Tax of 10%, 15%, 25%, 28%, 33%, & 35%
4. Proportional Taxes (flat rate) – takes the same
percent from all income groups.
Ex: 20% on all income groups or 1.45 Medicare tax
5. Regressive Taxes – takes a larger percentage from
low income groups.
Ex: Sales and excise tax; any consumption tax.
6. Ability-To-Pay principle – people with more income
or wealth should pay more taxes. It doesn’t make any
difference what benefits or services they received.
*Can not be transferred to another person; tax with your name on it
a. “Ability-to-pay based on income” – wages & salary,
or any other payments-will pay based on their total
dollar amount. Ex: Federal income tax
b. “Ability-to-pay based on wealth” – people with
more assets (houses, stocks, bonds) would pay taxes
based on the total value.
Ex: Inheritance and estate taxes, property taxes,
and capital gains.
7. Benefits-Received principle – [consumption tax or
user’s fee] – people who benefit bear its cost. The more
they use, the more they pay.
*Can be transferred to another person [relates to services received]
Ex: gasoline taxes, tolls, cigarettes, alcohol
Yea! We don’t have
to pay any federal
income or SS taxes.
7%
$179 B
37%
$884 bil. 11%
$261 B
45%
Deficit
$248 bil.
$1,096
We are paying about
$1 trillion in taxes.
8. Three major sources
of federal taxes(90%)
a. Individual income
taxes
b. Social Insurance
c. Corporate income
taxes
Federal Expenditures
Pensions and Income Security
National Defense
Health
Interest on Public Debt
Total Expenditures
$2,654 Billion
Pensions &
Income Security
35%
All Other
15%
Interest
13%
National
Defense
20%
Health
21%
Federal Tax Revenues
Personal Income Tax
•Marginal Tax Rate
•Average Tax Rate
Personal
Income Tax
46%
Federal Tax Revenues
Personal Income Tax
Payroll Tax
Corporate Income Taxes
Excise Taxes
Total Tax Revenues
$2,407 billion
Excise Taxes 4%
All Other 4%
Corporate Income Tax 8%
Personal
Income Tax
46%
Payroll
Taxes
38%
Revenues of $2.407
2006
Expenditures of $2.654
[Deficit of $248]
Last Surplus
Individual Income Taxes – [50%] [$1 trillion] The U.S.
had no individual income tax until 1913. This is a
progressive tax on an individual’s total income based on
ability-to-pay.[10%, 15%, 28%, 33%, and 35%]
9. Dependents pay no tax up to $5,350.
In 1914, only workers who made over $3,000, paid 1%[$30 max].
Only 4% earned enough to file a tax return & only $28 million was
collected.
10. Social Security Taxes (FICA[7.65%]-Federal Insurance
Contribution Act) [6.2% of income up to $102,000]
It is proportional up to $102,000, then it becomes
regressive. [A person making $102,000 pays 2% SS
tax but a person making $204,000 pays only 3.1%.
Medicare tax – 1.45% on every dollar earned. This is
a proportional tax. A person making $50,000, $100,000,
or $500,000 would still pay 1.45% of his income.
11. Corporate Income Taxes – progressive federal
taxes levied on a business corporation’s profits.
Corporate Federal Tax Rate
Under $50,000
15%
$50,001-$75,000
25%
$75,001-$100,000
34%
$100,001-$335,000
39%
$335,001-$10,000,000
34%
$10,000,001-$15,000,000
35%
$15,000,001-$18,333,333
38%
$18,333,334 +
35%
12. Excise tax – specialized sales tax on the production
or sale of particular products (not levied on the individual’s
income). Excise taxes are regressive because they take
a larger % from low income groups.
Excise taxes are levied on specific products like:
gasoline, liquor, telephone services, tires, legal
betting, and coal. In the early 90s, there was a
luxury excise tax on autos over $30,000, boats,
jewelry, and furs. This proved very unpopular so
it was dropped.
15. Estate tax – tax levied on the assets of a person
who dies and has assets in excess of $2.0 million dollars.
Estate taxes range from 18-50% of the value of the
estate which makes this tax a progressive one. This tax
is supposed to disappear in 2010 but reappear in 2011.
14 91%
91% on income over $200,000
35%
2008
GLOBAL PERSPECTIVE
Total Tax Revenue – Selected Nations
Percent of Total Output-2004
10
Sweden
Denmark
Norway
Finland
France
Italy
United Kingdom
Germany
Canada
Australia
United States
Japan
South Korea
20
30
40
50
50.7
49.6
44.9
44.3
43.7
42.2
36.1
34.6
33.0
31.6
25.4
25.3
24.6
Source: Organization for Economic Cooperation and Development
If you inherit $2 million dollars this
year, how much do you get to keep?
The Federal Estate Tax is disappearing.
An estate is exempt from federal estate taxes if it’s below the
following thresholds. The Tax will disappear in 2010, only to
reappear in 2011. [tax of 55% on estates after the first million]
2007 $2 M tax free
2008 $2 M tax free
2009 $3.5 M tax free
2010 No estate tax
2011 $1 M tax free
If you live in one of the gold states,
you might owe additional estate or
inheritance tax, even after the
federal G’s death tax disappears.
15. Gift tax – tax placed on the transfer of certain gifts
of value, such as money ($11,000 or more) or other
personal property. The person who gives the gift pays
the gift tax. It also is progressive up to 50%.
The estate & gift taxes account for only 1.3% of revenues.
16. Customs duties (tariffs) – tax on imported goods.
Although they produced most of government revenues
prior to 1913, they produce very little revenue today.
During George Washington’s time, tariffs brought in
over 99% of the government’s revenue.
17. The three most important state and local taxes
are the sales tax(21%), property tax(18%), and the
state individual income tax(12%).
18. Sales tax – an indirect regressive tax levied on
most products. The sales tax is not levied on baby
clothing, food, and medicine.
The sales tax in PBC is 61/2 percent of every dollar.
Only 5 states, Alaska, Delaware, Montana, New Hampshire,
and Oregon – do not have a sales tax.
On average, a family of four, pays about $800 a year
on the sales tax.
STATE AND LOCAL Spending
State Expenditures
Education
Public Welfare
Health and Hospitals
Highways [.20 a gallon]
Public Safety
Education
36%
Health & Hospitals 8%
Highways 8%
Public Safety 5%
Public
Welfare
All Other 25%
18%
STATE AND LOCAL Revenues
State Revenues
Sales and Excise Tax
Personal Income Tax
Corporate Income Tax
Licenses and Others
Property Taxes & Other Taxes
Sales &
State Excise Taxes
Personal
48%
Income Tax
34%
Property Taxes & Other Taxes 5%
Licenses & Others 6%
Corporate Income Tax 7%
STATE AND LOCAL Revenues
Local Revenues
Property Taxes
Sales and Excise Taxes
Personal & Corporate Income Taxes
Property Taxes
74%
Sales &
Excise
Taxes
16%
Personal & Corporate Income Taxes 6%
All Other 4%
19. Property Tax – tax on assets (mainly a tax on land
and buildings). These taxes are also on furniture, autos,
farm animals, stocks, bonds, and bank accounts. They
finance education, police and fire protection. This tax
is a regressive one because if two people own separate
$100,000 homes, they both pay the same tax.
State individual income tax – taxed by either the
“graduated” or “flat-rate” Texas is one of 7 states with
no state individual income tax.
20. Americans pay about 29 cents of every dollar in taxes.
Tax breaks cost $400 billion in lost revenue each year.
21. The Office of Management and Budget (OMB)
devises the yearly budget for the president. It is about
$2.9 trillion for 2007.
22. Tax cheating amounts to about $310 billion a year.
Who cheats the most? Self-employed people who are in
charge of their own taxes like gardeners, carpet layers,
who get paid in cash. Others are auto dealers, barbers,
telemarketers, restaurant owners, accountants, doctors,
and lawyers. Many overstate deductions.
Over 60% of corporations paid zero taxes from 1996-2000.
Men cheat more than women.
In 1987, the IRS began requiring taxpayers to report the
SSN of all dependents. The next year 7 million children
vanished(9%). People were listing their dogs, cats and
birds as dependents. Only about 20% of the disappearing
dependents represented children who had been claimed
by both parents after a divorce.
Informers on tax cheaters can get you 1% of what
they collect or 10% if you provide paperwork.
23. Guns
[defense]
or Butter
[social programs]
24. Budget Deficit [
G > T]
25. Budget Surplus [ T > G]
26. Causes of budget deficits include:
1.) national emergencies
2.) providing national defense
3.) stabilizing the economy
4.) promotion of economic well-being of citizens.
27. National Debt - total amount of money G owes.
28. Budget deficit – debt during one fiscal year [$162 bil.]
The debt totals $9.3 trillion. The interest on the debt
will cost $243 billion or 10 cents of each dollar.
Most of the Public Debt is held internally.
$9.4 tril.
Flow
Reasons for Debt
1.
2.
3.
4.
Lack of political will
Tax cuts
Recessions (transfers)
Wartime financing
Attention Deficit
Disorder [ADD]
Congressmen have
trouble focusing
attention on the deficit.
($162 bil.)
Stock
($9.4 trillion)
$33,000
3 3,
Per Capita
9, 4
1 4 0,
The Debt is increasing by $1 million per minute.
$1.58 billion per day is being added to the debt.
1.Annually Balanced Budget
2.Cyclically Balanced Budget
3.Functional Finance
[A. Annually Balanced; B. Cyclically Balanced; C. Functional Finance]
“Earth Orbits Sun” “G” Economy
Annually Balanced Budget – each time the earth orbits the sun we
should balance the budget.
This would put the G in an economic straitjacket as we couldn’t fight
recessions with deficit spending. This would be like pouring water on
a drowning man. We used to worship at the alter of a balanced
budget prior to the Great Depression. 49 states require this.
Balancing the budget during a recession would not be counter-cyclical,
but pro-cyclical. Increasing taxes during a recession would worsen the
recession. Running a surplus during boom times and giving the
money back would be inflationary.
Inflation
“Raise taxes”
Recession
“Tax cut”
“Deficit Spending”
Tax
Cuts
Raise
Taxes
“Balanced”
Cyclically Balanced Budget – run deficits during recessions &
surpluses during expansions so the budget is balanced not each year
but over the course of the business cycle. Economic wisdom tells us we
should have deficits in lean years and surpluses in fat years. There is
nothing “sacred about 12 months as an accounting period.”
The government could conduct counter-cyclical fiscal policy and balance
its budget over a period of years. The basic problem of this philosophy is
that fluctuations are not usually symmetrical enough to ensure that the
surplus will offset the deficit.
U.S.
Economy
“Balance the economy, not the budget.”
Functional Finance – balance the economy not the budget.
The annual or cyclically balanced budget is of secondary importance. The
important thing is to provide for non-inflationary, FE & ensure the economy
produces its potential GDP. If there are chronic deficits or surpluses, so be it.
Deficits are minor problems, compared to inflation or recessions.
$9.4 trillion is enough to:
-Give every 18-year-old a 4-year
college education for the next 57 years.
-A stack of $1,000 bills 4 inches high is a million.
$1 trillion would be a stack of $1,000 bills 252.5 mil.
high. $9.4 trillion would be 2,348 miles high.
-A $1 bill is 6 inches long. If $9.4 trillion bills were
laid end to end, they would form a chain 700 million
miles long, enough to stretch from the surface of
the earth to the surface of the sun and back –5 times.
$9.4 Tril.
[adjusted for inflation in 2000 dollars]
$9.4 Tril.
Except for WWII, the deficit
stayed pretty constant for
about 40 years until 1983
1990 - 2010
Budget Deficits or Surpluses, Billions
$800
700
600
Projected
Actual
$162 in 2007
500
400
300
200
100
0
-100
-200
-300
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Economic Report of the President, 2001
1992 - 2012
Actual
Projected
($162 in 2007)
Budget Deficit (-) or Surplus, Billions
$300
200
100
0
-100
-200
-300
-400
-500
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: Congressional Budget Office
$162
$412
2008
9400.0
13,800.0
243.0
68%
1.8%
33,000
2008 Federal Budget Proposal-$2.9 Tril.
Agriculture
90.9 Interest [$243]
Commerce
6.7
Defense
624.6
Education, job train. 62.6
Energy, Environment 21.6
Health/Human SVC 699.0
Homeland Security
34.6
Housing/Urban Dev.
36.2
Interior
10.1
Justice, Law enforce 23.3
$67.3
Labor
50.4
NASA
17.3
SEC & Exchange Com.
8.5
Corp Engineers
4.8
State
37.4
Social Security 655.5
Transportation
67.3
Legislative Branch 4.8
Treasury
525.5
Judiciary
6.7
Veteran’s Affairs
84.4
Other agencies 148.7
Federal Spending in 2007, by Function
Publicly Held Debt:
International Comparisons
As a Percentage of GDP - 2005
0
Italy
Belgium
Japan
Germany
France
United States
Hungary
Netherlands
United Kingdom
Spain
Canada
Poland
20
40
60
80
100
101.3
86.3
80.9
58.8
46.5
66.7
39.6
39.3
39.1
28.7
26.4
17.0
Source: Organization for Economic Cooperation and Development
[This is held both privately and publicly]
U.S. Banks & Financial
Institutions
Other, Including
State & Local Governments
Federal Reserve
49%
Debt held outside the
Federal Gov and Fed [49%]
Foreigners hold $1.9 Trillion
Japan-$582 B, China-$500 B,
Britain-$266 B, OPEC-$126 B,
S. Korea-$46 B, H. Kong–$56 B,
Taiwan-$53 B, Singapore-$24 B,
Thailand-$13 B, & India-$13 B.
World Total: $2,247
8%
8% 9%
U.S.
Government
Agencies
42%
25%
8%
Foreign Ownership
51%
U.S. Individuals
Debt held by the Fed
& Gov. Agencies [51%]
Economic Issues From The Debt
Abe Lincoln, with the Debt at $1 billion in 1864, said, “Men can
readily perceive that they cannot be much
oppressed by a debt which they owe themselves.”
More Income Disparity [the debt is transferred from
all taxpayers to the bond holders [the rich], so more income disparity]
– larger taxes dampen incentives to bear
Incentives
risk, to innovate, to invest, or just to work.
*Children will not inherit as large of a “national factory”
Two Ways To Balance The Federal Budget
29. Increasing government revenues
a. Increase taxes
b. tax cheating cost the government over $310 billion
Decrease in government expenditures[2.5 tr. in 2005]
c. Government must stop waste and fraud
1.) a check of 4 states (including Tx) turned up 26,000
dead people getting food stamps, costing $1.5 billion a yr.
2.) Thousands of prisoners get welfare. 60,000 inmates
were getting $500 million in fraudulent benefits.
12,000 inmates were receiving illegal food stamps.
On “Dateline” a report said that $53 M was caught
as prisoners were filling out W-2 forms, as if they
had jobs, trying to get refunds. $10 M got thru.
Federal employees each year charge millions of dollars for such
d. There is as much as $80 billion in waste & fraud.
things as internet dating, tailor-made suits, lingerie, lavish
There is $4.3 billion in improper unemployment checks
dinners to their government credit cards. Last year, for purchases
There is $70 billion fraud [out of $400 B] in Medicare.
over $2,500, about half were improperly received.
The DOD is the King of Fraud. FEMA was fleeced for $2 billion.
From 1 Trillion to 9.3 Trillion in 28 Years.
2007
$9.4 Trillion
$33,000 each
Will today’s children bear the burden of debt?
Tax rate (percent)
100
L
0
Tax revenue (dollars)
Tax rate (percent)
100
M
L
0
Tax revenue (dollars)
100
Tax rate (percent)
N
M
L
0
Tax revenue (dollars)
100
Tax rate (%)
N
M
M
Maximum
Tax
Revenue
L
0
Tax revenue (dollars)
Tax $
Ben Stein’s part in this
movie as a boring econ
prof was voted one of the
50 most famous scenes
in American film.
0% Tax Rate
100%
Ben Stein [from “Ferris Bueler’s Day Off”] graduated from
Columbia University in 1966 with a degree in economics
and from Yale Law School in 1970 as valedictorian. He was
a speech writer for Nixon. He has written 16 books, including
his latest humor book, “How To Ruin Your Life”.
Ben Stein boring his students about
Supply-side econ & the Laffer curve
 Right click “Open Hyperlink”.
 Click on video.
Reaganomics and Budget Deficits
In honor of
President
Reagan’s 1st 4 years
the democrats
wanted this new
$1 Trillion bill.
A Word From Arnold
Learn economics.
Don’t be “economic
girlie men.”
Parents are now getting questions
like this from their children.
Supply-side
Economics
Voodoo
Economics
Doodoo
Economics
Trickle-down
Economics
Dad, Do we believe in Supply-side,
Voodoo, Doodoo, Trickle-down or
Girlie Men economics?
Girlie Men
Economics
Economic Implications of the Debt: False Issues
[The “G” doesn’t have to pay the entire debt off because it never “dies.”]
[The “G” will live forever so it will keep “rolling it over in perpetuity”]
Whew! $33,000 each.
I’m not paying no
$33,000.
Going Bankrupt?
The “no” answer entails three points.
1. Refinancing – as portions of the debt fall
due each month, the G does not cut G or
raise T to retire the maturing bonds.
It refinances the debt by selling new bonds
and uses the proceeds to pay off holders of the maturing bonds.
2. Taxation – if bankruptcy were imminent the G could always raise taxes.
3. Creating Money – bankruptcy could be avoided by printing the money (inflationary).
Shifting Burdens
Does every new born get slapped on the backside, then told he owes $33,000?
Not quite. About 82% of the debt is owed to ourselves. Thus the public debt is a
a public credit. It is a liability to the taxpayer but an asset to the people (bondholders).
Therefore, retiring the debt would amount to a large transfer payment from U.S.
citizens to U.S. citizens. The repayment would entail no decrease in the economy’s
wealth or standard of living. So the babies who inherit $33,000 worth of debt will
inherit almost that same amount.
[Incr G
AD1 AD2
4%
2%
AS
G
Market
D1 D2
10%
6%
IG
YR Y*
s
F1 F2
Quantity of LF
DI
Decr Ig]
10%
Real interest rate
PL
Real I.R.
Loanable Funds
incr I.R.
8%
6%
4%
2%
Crowding
Out Effect
0
15
20
25
15
Investment (billions of
dollars)
5
10
In this case, it would be 100% “crowding out”.
G can finance a deficit by:
Friedman
Just follow the
“monetary rule.”
1. Borrowing - this raises interest
rates in the LFM and “crowds out” investment.
2. Money Creation - no “crowding out”
so is more expansionary than borrowing.
AD2
AS 16
AD1
DI1
14
G
But … if the economy is operating
DI2 well below its potential, the increased
G could result in more jobs, more
positive profit expectations, and a
“crowding in” of Ig.
YR Y*
Real interest rate (%)
12
10
8
6
4
2
0
5
10
15
20
25
30
35
Investment (billions of dollars)
40
“Crowding In” – potential for G spending to stimulate
private investment in an otherwise sluggish economy.
“Crowding Out” represents argument for passive fiscal policy.
“Crowding In” would be an argument for active fiscal policy.
If the economy is operating well below its potential, the additional
fiscal stimulus provided by deficit spending could encourage firms to
invest more. A G deficit could stimulate a weak economy, increasing
AD & putting a “sunny face on business expectations.” As business
expectations grow more favorable, firms could become more willing
to invest. [thus, “crowding in” of investment]
If you have ever approached a crowded restaurant, you may not
have wanted to put up with the hassle of a long wait and were thus
“crowded out.” Similarly, large G deficits may drive up interest rates
and crowd out some investment.
As Yoga Berra would say, “No one
On the other hand, did you ever pass up a restaurant because the place
goes there
more.
It’s too
crowded.”
seemed
dead-it any
had few
customers.
Perhaps
you wondered why so few
people
chose
to eatsaid,
there. “If
With you
just acome
few more
Yoga
also
to customers,
a fork you might have
been willing to “crowd in.” Businesses may be reluctant to invest in a lifeless
in the road, take it.”
economy. Economic stimulus could encourage them to “crowd in.”
•Pay Down the Public Debt
•Reduce Taxes
•Increase Government
Expenditures
•Bolster the Social Security
Trust Fund
•Combinations of Policies
Crowding-out
effect in an Open Economy
[Xn are crowded-out, decreasing AD]
3. Decline in
7. U.S.
domestic inv.
1. Federal
Government
deficits
2. High real
(crowding-out)
U.S. interest
rates
4. Increased
foreign demand
for U.S. bonds
5. Increased
U.S. external
debt
6. Increased
international
value of dollar
Exports
decrease
8. U.S.
Imports
10.Trade
deficits
increase
9. Decr in Xn decr AD
Gramm-Rudman-Hollings
[30. Attempt to balance the budget which failed]
[declared unconstitutional]
1. We could have a constitutional amendment to balance
the budget. However, this would be pro-cyclical and
destabilize the economy.
2. 30. Gramm-Rudman-Hollings Act – balance the
budget by 1991(revised to 96). The Supreme Court
later ruled it unconstitutional.
3. Tax Increases – Perot wanted to raise gasoline taxes
50 cents a gallon.
4. Privatization – U.S. government could sell its assets.
Britain sold $25 billion of government assets in the 80s.
5. Line-item veto – the President could veto particular
portions. Supreme Court declared this unconstitutional.
This would get rid of “pork-barrel” legislation.
6. Term Limits for congressmen and senators.
The term "pork barrel" stems
back to the early 1800s when the
popular meat was packed that
way, and hungry farm hands
reached in for slabs of salt pork.
In 1879, it was adopted as
political slang to mean goodies
for the local district paid for by
the taxpayers at large.
$107,000 to study the sex life of
the Japanese quail.
$1.2 million to study the breeding
habits of the woodchuck.
$150,000 to study the HatfieldMcCoy feud.
$84,000 to find out why people
fall in love.
$1 million to study why people
don't ride bikes to work.
2003 MOST ABSURD PORK
$19 million to examine gas emissions
from cow flatulence.
$144,000 to see if pigeons follow human
economic laws.
Funds to study the cause of rudeness on
tennis courts and examine smiling patterns in
bowling alleys.
$219,000 to teach college students how to
watch television.
$2 million to construct an ancient Hawaiian
canoe.
$20 million for a demonstration
project to build wooden bridges.
$160,000 to study if you can hex
an opponent by drawing an X on
his chest.
$800,000 for a restroom on Mt.
McKinley.
$100,000 to study how to avoid
falling spacecraft.
$16,000 study of the the
komungo, a Korean instrument.
$1 million to preserve a sewer in
Trenton, NJ, as a historic
monument.
$6,000 for a document on
Worcestershire sauce.
$10,000 to study the effect of
naval communications on a bull's
potency.
$100,000 to research soybeanbased ink.
$1 million for a Seafood
Consumer Center.
$57,000 spent by the Executive
Branch for gold-embossed playing
cards on Air Force Two.
Total ABSURD PORK
from previous pages:
$ 45,980,000
Pork in Alaska
• In the latest $388 spending bill for 2005, there
is $16 billion in pork barrel legislation, quite a
bit going to Alaska.
• $950,000 for a recreation center and $150,000
for a botanical garden in Anchorage.
• $300,000 for a senior center in Fairbanks.
• $900,000 for an aquarium in Ketchikan.
• $500,000 for a quarry in Nome, Alaska.
• Ted Stevens who is chairman of the
Appropriations Committee was responsible for
most of this pork to Alaska.
This is called “bringing home the bacon”.
The Federal budget is like a Christmas tree.
Every congressman tries to hang on an ornament or two.
It takes 5 minutes to get to this Alaskan island
by ferry but the federal government is going to
spend $223 million to build a bridge to it.
Other Pork Barrel Legislation for 2005
A selected list of hometown and special-interest projects in the $388 billion government
spending package:
· Alabama: $4 million for the International Fertilizer Development Center in Muscle Shoals.
· Alaska: $443,000 to develop salmon-fortified baby food.
· Arizona: $2.5 million for Lone Pine Dam Road.
· California: $150,000 for the Girl Scouts Golden Valley Council bridge project.
· Florida: $1 million for the Palm Coast Trail System in Flagler County.
· Kentucky: $2.3 million for an animal waste management research laboratory in Bowling
Green.
· Hawaii: $4 million for mitigation of congestion in Kapolei City.
· Illinois: $1.4 million for an Interstate-55 sound barrier in Darien.
· Massachusetts: $1.2 million for Cape Cod Seashore Eastham/Dennis Bike Trail Repair.
· Mississippi: $750,000 for the Mississippi Museum of Natural Science.
Missouri: $50,000 to control wild hogs in Missouri
· Montana: $1.5 million for a ''fuels-in-schools'' biomass project.
· North Carolina: $1 million for Garden Parkway in Gaston and Mecklenburg counties.
North Dakota: $335,000 to protect North Dakota’s sunflowers from blackbirds.
· Ohio: $750,000 for the city of Circleville's sewer construction project; $350,000 for music
education programs at the Rock and Roll Hall of Fame in Cleveland.
· Oregon: $6.28 million to Oregon State University for wood utilization research and $688,000
for a barley gene-mapping project.
· Pennsylvania: $250,000 to promote tourism in the Allegheny National Forest area.
· Tennessee: $2 million for the Fiery Gizzard Trail.
· Vermont: $500,000 for a wood products program.
· Virginia: $500,000 for the Amherst County River Walk Trail; $200,000 for a Vermont Civil War
Monument in Virginia.
· Washington: $1 million for the Enumclaw welcome center; $1 million for the Norwegian
American Foundation.
· Wisconsin: $3.2 million for the Chequamego-Nicolet National Forest ''Wisconsin Wild
Waterways.''
There is also $1 million for a “Wild American Shrimp Initiative” so we might call this
our, “No shrimp left behind initiative.”
“If you had a well-paying position that comes with
all kinds of perks and opportunities, would you
vote to fire yourself? Is there another position in
which you vote to set your own salary?
Maybe 6 years for representatives and 12 for senators, max.
Currently, politicians take our money and convert it
into pork projects to get themselves re-elected. They
must treat other people’s money the way they treat
their own.
Also, we need to elect politicians who we can tell how
much of our money we will let them spend instead of
letting them tell us how much they will let us keep.
Giving money and power to government is like
giving beer and car keys to teenage boys.
P.J. O’Rourke
$65,000
$65,000
$82,000
$42,000
$93,000
$42,000 $44,000
$60,000
$46,000
$32,000
$34,000
$55,000
$38,000
$34,000
$11,000
$25,000
Texas Tax Revenue [mainly regressive]
31. Texas gets most
of its revenue from
the sales tax.
Oil
production 2%
Sales Tax (R)
61%
Texas gets most of
its revenue from
the sales tax.
% of income of a family of 4 in state/local taxes (TX)
20%
18% 17.1%
16%
2.7
14%
12%
10.7%
6.8
10%
1.5
8.4%
8%
1.1
5.0
6%
4.0
4% 7.6
2%
4.2
3.3
0
$10,812
$1,812
$23,100 $35,300
Excise Tax
Sales Tax
Property Tax
7.4%
0.9
6.4%
3.5
2.9
3.0
2.9
5.1%
3.1%
2.3
1.5
2.5
1.5
$51,400 $80,400 $180,000 $945,500
Average Annual Income
2,472 2,965 3,804 5,470 9,180 29,311
32. By relying on regressive sales, property, & excise taxes, Texas is
taxing its poor more than five times the rate it does the rich.
Texas has one of the most regressive tax systems.
Texas does not have a state income tax.
33. The largest percentage of state & local taxes supports education.
34. Direct taxes - levied directly on individuals
and paid directly to the government.
Ex: Federal income tax and Medicare tax
34. Indirect taxes – levied on certain products
rather than directly on individuals (sales and
excise taxes). The government gets the tax
indirectly.
The Seven States With No Income Tax
*They tend to have more regressive tax systems.
We no longer have to hit our
newborn to get their first cry.
Now we tell them, “You
owe $33,000.” (as their
share of the National Debt)
“Take
That!
We get the same result –
their first cry; no more
of that “Take that.”
The Debt prevents
me from having to
do this.
This is the way we used to get
the first cry out of a baby.
Goodbye Hassle, Hello Tassel.
08
Remember!!!
These are the best years of your life!!!!!
And Who In The Class of 2008 Is Most
Likely To Be Incarcerated In 2018?
And what famous person
will he more than likely
share a cell with?
Proclamation
June 10, 2010
Chief of Police
Dallas, TX
PANCHO (Jared) VILLA
Also $1,000 reward for arrest of Brad Benjamin,
Matt Kantor, Colin Theall, and Maia Hommes.
Jocko
Juniors
Still in BL bondage.
“Let me do the praying
this time. Thanks for
bringing me to Timmy’s
house and not Michael
Vick’s!!!”
The End
Answers:
1.C 2.B 3.CQuiz
4.C –
5.C
6.C 7.C 8.A 9.C 10.B
Taxes
A. Progressive Tax
B. Proportional Tax
C. Regressive Tax
1. Leah [income of $32,000] and Laura [income] of $50,000] both pay a 6.25%
motor vehicle sales tax on the purchase of their separate $65,000 vipers.
2. Brad [ income of $27,000] and Michelle [income of $50,000] both pay a 2% state
income tax on their entire income.
3. Anna [income of $60,000] and Candice [income of $35,000] both purchase $100
worth of lottery tickets. [so both paid the same amount of $100]
4. Kayla [income of $25,000] and Justin [income of $40,000] both pay car
property taxes of $100 dollars because they have the same make of car.
5. Jacob [income of $40,000] and Maia [income of $30,000] each pay a $2,000
property tax on their separate $100,000 appraised houses. [Both paying same amount]
6. Jared [ income of $41,000] and Brad [income of $61,000] smoke 3 packs of
Marlboros a day and both pay a tax of $1.41 a pack.
7. Bryan [income of $59,000] and the “Kat” [income of $30,000] both purchase
plasma TVs for $4,000 and both pay a sales tax of 6.25%.
8. After Kelsey finished Bishop Lynch [took 6 years], he got a raise at the Hong Kong
Buffet, which moved her from the 10% tax bracket to the 15% tax bracket.
9. John [income of $500,000] & Becca [income of $100,000] both pay 20 cents a
gallon gasoline tax for 15 gallons they put into their Corvettes. [same amount]
10. Elisa [income of $12,000] and Andres [income of $70,000] both pay the
1.45% medicare tax on their salaries.
Name 1. ____________________ Proportional
Name 2._____________________ 1._______________________________
*Write the bold face type.
Flat rate tax on income
Flat rate tax on a product
Arkansas state income tax
of 7% on all income groups
Takes same % from all Y groups
10% Federal income tax
on all income groups
Corporate income tax
Medicare tax of 1.45%
based on income
Benefits go to survivors
and disabled
Most of benefits go to
retired persons
The more u use (buy) of the
product, the more u pay
“Direct” tax [federal income]
Can be based on income or
wealth [estate taxes]
Becomes regressive for
incomes over $102,000
Proportional tax on
incomes up to $102,000
2._______________________________
3._______________________________
4._______________________________
5._______________________________
Regressive
1._______________________________
2._______________________________
3._______________________________
4._______________________________
5._______________________________
Progressive
1._______________________________
2._______________________________
3._______________________________
4._______________________________
5._______________________________
Ability-To-Pay
1._______________________________
2._______________________________
3._______________________________
4._______________________________
5._______________________________
Benefits-Received
1._______________________________
2._______________________________
3._______________________________
4._______________________________
5._______________________________
Social Security Tax
1._______________________________
2._______________________________
3._______________________________
4._______________________________
5._______________________________
Bonus: Who is the orphan above?
________________________________
TAXES WORD SCRAMBLE
Excise tax
50 cent tax on
the toll road
Estate tax
Lottery ticket
High income
groups pay more
Federal income tax of
10%, 15%, 25%, 28%, 35%
Low income groups pay more
Ability-to-pay principle
(make higher income groups higher %)
Consumption tax
Takes 6.2% of every dollar
User’s Fee
Can be transferred to another
Personal income tax
The wealthy pay more
Cigarettes, alcohol, & gas tax
Cannot be transferred to another
Name 1. __Key_______________ Proportional
TAX WORD
1. Flat rate tax on income
Name 2._____________________ 2. Takes same % from all income grps
Excise tax
*Write the bold face type. 3. 10% federal tax on all income groups 50 cent tax on
4. Medicare tax of 1.45%
Flat rate tax on income
the toll road
5. Arkansas state income tax of 7%
Flat rate tax on a product Regressive
Arkansas state income tax 1. Flat rate tax on a product
2. Lottery ticket
of 7% on all income groups
3. Excise tax
Takes same % from all Y groups 4. 50 cent tax on toll road
5. Low income groups pay more
Progressive
1. Estate tax
2. Corporate income tax
Corporate income tax
3. High income groups pay more
4. Federal income tax
Medicare tax of 1.45%
5. Ability-to-pay principle
based on income
Ability-To-Pay
1. Direct tax
Benefits go to survivors
2. Based on income or wealth
and disabled
3. Personal income tax
Most of benefits go to
4. Wealth pay more
retired persons
5. Cannot be transferred
The more u use (buy) of the Benefits-Received
1. More u use, the more u pay
product, the more u pay
2. Consumption tax
“Direct” tax [federal income] 3. User’s fee
4. Can be transferred
Can be based on income or 5. Cigarettes, alcohol, & gas tax
Social Security Tax
wealth [estate taxes]
10% Federal income tax
on all income groups
1. Benefits to survivors/disabled
2. Most of benefits go to retired persons
3. 6.2% of every dollar
4.Proportional tax on inc up to $102,00
5. Becomes regressive for incomes over $102,000
Becomes regressive for
incomes over $102,000
Proportional tax on
incomes up to $102,000 Bonus: Who is the orphan above?
________________________________
SCRAMBLE
Estate tax
Lottery ticket
High income
groups pay more
Federal income tax of
10%, 15%, 25%, 28%, 35%
Low income groups pay more
Ability-to-pay principle
(make higher income groups higher %)
Consumption tax
Takes 6.2% of every dollar
User’s Fee
Can be transferred to another
Personal income tax
The wealthy pay more
Cigarettes, alcohol, & gas tax
Cannot be transferred to another