Lagi

Regular Economics - Ch. 14 - TAXES AND GOVERNMENT SPENDING – Review

• Taxes collected under the Federal Insurance Contribution Act (FICA) fund Social Security and Medicare.

• A means-tested program means that eligibility depends on income.

• The consumer generally bears most of a sales tax when the demand for the good taxed is inelastic.

• Social Security taxes pay for benefits to older citizens, surviving family members of wage earners, and people with certain disabilities.

• One reason the federal government collects income taxes as a person earns is so that the government can pay bills as they come due.

• An operating budget is for day-to-day expenses; a capital budget is for investment spending.

• An entitlement is a social welfare program providing benefits to people who meet certain eligibility requirements.

• The major source of tax revenue for local governments is property taxes.

• Constitutional limits on the power to tax include tax money must not go to individual interests, federal taxes must be the same in every state, and imports must not be taxed.

• Your department store receipt says that you paid a 5% sales tax on sports equipment. This sales tax is an example of a regressive tax.

• The sales tax on a $20.00 hammer is 7%, or $1.40. This tax a bigger burden for Josh, who has a $15,000 income, than for Aaron, who has a $150,000 income because it represents a larger proportion of Josh’s income.

• Suppose your total taxable income this year is $75,000. You are taxed at a rate of 10% on the first $25,000, 20% on the next $25,000, and 30% on the final $25,000. Your total income tax is $15,000 ($2,500+$5,000+$7,500).

• The demand for cable television is relatively elastic, since if the price gets too high, people will rent DVDs or videos instead of watching cable. The incidence of a 10 percent tax on cable television is likely to be borne by the producer.

• Interest on a home mortgage, some medical expenses, and donations to charity may be...