S government in other words arent tax revenues always

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Unformatted text preview: (See Exhibit 14-2.) e QUESTION: Don’t tax revenues steadily climb for the U.S. government? In other words, aren’t tax revenues always higher for a later year than an earlier year? ANSWER: Over a long period of time, tax revenues rise, but tax revenues in a later year are not always higher than in an earlier year. For example, in 2000, federal tax revenues were $2,025 billion, but in 2001 they fell to $1,991.2 billion. One year later, in 2002, they fell again to $1,853.2 billion. In other words, federal tax revenues fluctuate. Three Other Taxes The taxes just described are not the only taxes people pay. In most states, people must also pay a state income tax. In addition, other major taxes are sales taxes, excise taxes, and property taxes. Sales Tax Sales taxes are applied to the purchase of a broad range of goods—cars, computers, clothes, books, and so on—when they are purchased. State governments typically raise tax revenue through sales taxes. The federal government does not collect a (national) sales tax. Sales taxes differ among states. For example, in Florida the sales tax rate is 6 percent, but in Georgia it is 4 percent. In most states, food purchases (at a grocery store) are not subject to the sales tax, although some states tax food sales at a rate that is lower than the regular sales tax. In most states, no sales tax is charged for prescription drugs. Excise Tax Excise taxes are taxes placed on the purchase of certain goods, such as tobacco products and gasoline. Every time people buy gasoline at a gas station, they pay an excise tax. The federal government applies excise taxes, as do many states. For each dollar the federal government raises from taxes, 44 percent comes from the personal income tax, 10.3 percent comes from the corporate income tax, 38 percent comes from the Social Security tax, and 7.7 percent comes from other federal taxes. (These percentages are for 2005.) Edward goes to the gas station and fills up his car with gas. He looks at the price per gallon: $2.75. He might not realize it, but an excise tax is included in that $2.75 per gallon. Both federal and state excise taxes apply on gasoline. While the federal tax is uniform across the country, the state excise taxes vary from state to state. To pick one state, Connecticut, the sum of federal and state excise taxes on a gallon of gasoline is about 50 cents. In other words, out of every gallon of gas pur“The hardest thing in the chased in the state of world to understand is the Connecticut, 50 cents goes income tax.” for excise taxes. –Albert Einstein EXAMPLE: Property Tax Property tax is a tax on the value of property (such as a home). It is a major revenue source for state and local governments. Yvonne buys a house. In the state in which she lives, the property tax rate is 1.25 percent of the market price of the house. She paid $300,000 for her house, so her property taxes each year amount to $3,750, or $312.50 a month. EXAMPLE: Section 1 Taxes 367 14 (364-389) EMC Chap 14 11/18/05 10:58 AM Are You Paying Someone Else’s Taxes? ??? S ince the inception of Social Sec...
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This document was uploaded on 01/16/2014.

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