365 14 364 389 emc chap 14 111805 1058 am page 366

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Unformatted text preview: cation. And educating our kids is perhaps the most important job we have.” • Does the federal government spend little on education? 365 14 (364-389) EMC Chap 14 11/18/05 10:58 AM Page 366 Focus Questions What are the three major federal taxes? What are three types of taxes people pay in addition to the three major federal taxes? What is the purpose of the alternative miniumum tax? How do proportional, progressive, and regressive income taxation differ? What is a fair tax? Taxes Key Terms proportional income tax progressive income tax regressive income tax Three Major Federal Taxes Here are the federal tax projections made by the Congressional Budget Office for the years 2006–2011. EXH I BIT 14-1 Taxes Taxes The government has three levels: federal, state, and local. At the federal level are three major taxes: the personal income tax, the corporate income tax, and the Social Security tax. In 2005, the federal government took in tax revenues of $2,057 billion. Of this total, about 92.3 percent was from personal income, corporate income, and Social Security taxes. Exhibit 14-1 shows the estimates of the Congressional Budget Federal Tax Federal Tax Projections, 2006 –2011 2006 2011 ($ billions) 2006 2007 2008 2009 2010 2010 2011 2011 $ 986 986 $1,082 $1,082 $ 1,172 1,172 $1,265 $1,362 $ 1,561 1,561 Corporate income Corporate income 226 226 226 226 237 237 246 246 249 249 254 254 Social Security Social Security 833 833 918 918 962 962 962 962 1,054 1,054 Other Other 167 167 167 181 181 188 188 188 188 193 193 Total Total $2,212 $2,212 $2,308 $2,308 $2,508 $2,508 $2,661 $2,661 $2,761 $2,761 $3,062 $3,062 Personal income Personal income 366 Chapter 14 Taxing and Spending Office for the tax revenue that each of the three taxes will generate from 2006 to 2011. Personal Income Tax The personal income tax is the tax a person pays on his or her income. A federal personal income tax is applied by the federal government, and many (but not all) states have a personal income tax. At the federal government level, the personal income tax raised $899 billion in 2005, which accounted for approximately 44 percent of total federal tax revenue that year. In other words, for every $1 the federal government received in taxes in 2005, 44 cents of that dollar came from the personal income tax. Corporate Income Tax The tax corporations pay on their profits is the corporate income tax. The federal government applies a corporate income tax, as do many states. At the federal government level, the corporate income tax raised $216 billion in 2005. This amount was about 10.3 percent of the total federal tax revenue in 2005. 14 (364-389) EMC Chap 14 11/18/05 10:58 AM Page 367 Social Security Tax The Social Security tax is a federal government tax placed on income generated from employment. Half of the tax is placed on the employer, and half is placed on the employee. In 2005, at the federal government level, the Social Security tax raised approximately $790 billion, or about 38 percent of the total federal tax revenue....
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