Funding the Public Sector (Part 2) PDF

11/14/2024 Chapter 6 Funding the Public Sector (Part 2) “Nothing is certain but death and taxes!” (Benjamin Franklin, and others…) 1 Adam Smith – On Taxes… "Such things as defendi...

11/14/2024 Chapter 6 Funding the Public Sector (Part 2) “Nothing is certain but death and taxes!” (Benjamin Franklin, and others…) 1 Adam Smith – On Taxes… "Such things as defending the country and maintaining the institutions of good government are of general benefit to the public. Thus, it is reasonable that the population as a whole should contribute to the tax costs. It is also reasonable to demand certain other things of a tax system – for example, that the amounts of tax individuals pay should bear some relationship to their abilities to pay… Good taxes meet four major criteria. They are (1) proportionate to incomes or abilities to pay (2) certain rather than arbitrary (3) payable at times and in ways convenient to the taxpayers and (4) cheap to administer and collect.“ – From “The Wealth of Nations” 2 1  11/14/2024 Social Security Tax Also called – “Payroll Tax” FICA of 1935 Matching Program – What does that mean? Generally… Flat (could argue regressive) “Pay as you go” Program (Sometimes referred to as “Ponzi” program) 6.2% - up to Year Maximum 3 Social Security Tax 6.2% - up to Year Maximum 2024 - $168,600 = $10,453 2023 - $160,200 = $9,932 2022 - $147,000 = $9,114 2021 - $142,800 = $8,854 2020 - $137,700 = $8,537 2019 - $132,900 = $8,240 2018 - $128,400 = $7,961 Note – We DON’T tax all income for SS. 4 2  11/14/2024 Social Security “Issues” “Baby Boomers” (1946-1964) --- Retiring in large #’s Fewer people paying into the program! Life Expectancy Increased (M, F) – 1900 = 46, 48 – 1935 = 60, 64 – 1950 = 65, 71 – 1981 = 70, 78 – 2010 = 76, 81 (36TH in the world) – 2016 = 76.1, 81.1 – Make it to 65 in 2016 --- 83, 85.6 5 6 3  11/14/2024 Life Expectancy… https://www.ssa.gov/OACT/population/longevity.html 7 How many workers are funding each Social Security recipient??? 8 4  11/14/2024 1946 42 - 1 9 1960 9-1 10 5  11/14/2024 Today 3-1 11 Estimated by 2030…. 2 - 1 12 6  11/14/2024 Social Security Question Will it be there for you????? I have no idea! But… make sure you have 35 years of earnings! (Just in case…) Actually… Yes, something will be there, but “how much” is a guess! 13 Source: World Bank, Fertility Rate, Total for the United States [SPDYNTFRTINUSA], retrieved from FRED, Federal Reserve Bank of St. Louis, August 30, 2021. 14 7  11/14/2024 Source: Anqi Chen & Nilufer Gok, “Will Women Catch Up to Their Fertility Expectations?” Center for Retirement Research at Boston College, no. 21-6 (March 2021). 15 Medicare 1965 --- LBJ program… 1.45% --- matched by Employer – Earned Income over $200K, increased by 0.9% – Therefore, 2.35% on that portion of income All employment income taxed for Medicare – No Ceiling – Elderly (over 65) use 33% of budget – Routine care in U.S. for elderly, NOT routine in other countries. – Exa – Britain limits kidney dialysis over age 55 16 8  11/14/2024 Corporate Income Tax Progressive? – NOPE --- change has occurred! Flat – 21% (For now…) – Biden Administration proposes Hike to 28% – 15% Minimum Tax Proposed (7/2022) Complex? – Most likely this hasn’t changed! Tool of Fiscal Policy Question --- Who pays corporate income tax? 17 (Previous) Corporate Tax Rates 18 9  11/14/2024 Excise Tax… Main Types: Fuel Tobacco Alcohol Airline Tickets Health-Related goods Others… 19 Summarize - Federal Personal Income Tax Social Security (Payroll Tax) Corporate Income Tax Excise Tax Unemployment Tax Estate Tax 20 10  11/14/2024 21 State Taxes Income (41 states) {NH taxes investment earnings} Interesting… – Pro Athletes (see next slide) Sales Excise (“Special duty tax”) – on specific product – Fuel, Alcohol, Tobacco, Marijuana, etc. – Sugar Tax?? Lotteries – are they a tax? 22 11  11/14/2024 23 State Income Taxes for Pro Athletes Where does the athlete live? – Look for non-tax state for residence, 183 days? – Quirky – DL, voter reg, 12-month lease, etc. – “Duty Days” California example… Part-Year, Non-Resident, etc. Exa – Lebron James = Income in 21 states… NFL 8-12, NBA 16-20, MLB 20-25 Some reciprocate / offer credits City taxes?? Federal --- just as an fyi… – $10,000,000 in Income = $3,661,520 in FED taxes – And, don’t forget the FICA/Med taxes. 24 12  11/14/2024 Marijuana Taxes Fully Legal = 22 States + DC Taxation = Varies – As % of Price (Sales Tax) – Weight Based (Cigarettes) – Potency Based (Alcohol) $$$$ Issue – How to deposit? – Minimal Bank Availability – Cash!! – Some small bank access… Will change, eventually. 25 Marijuana States (Very Fluid!) 26 13  11/14/2024 What about Lotteries? Voluntary Tax! But, inefficient per some… Est $70B per year 27 28 14  11/14/2024 What Americans spent on the lottery in 2014 (CNN Money / NASPL) 29 Lowest 20% Second 20% http://metrocosm.com/could-the-lottery-be-the-largest-tax/ 30 15  11/14/2024 Add the lottery! Lowest 20% Second 20% 31 More ‘excise’ tax --- Sugar Tax Mexico Passed “Soda Tax” to address ‘obesity’ Prices up about 10% Sales down about 12% Obesity/Diabetes? – Difficult to say – Replace calories? https://static01.nyt.com/images/2015/09/30/upshot/04UP-Soda/04UP-Soda-thumbStandard-v2.jpg 32 16  11/14/2024 One more “market distortion” in New York City (Eventually repealed by their highest court …) 2013 - Former Mayor Bloomberg thought NYC citizens were drinking too much sugary liquids! 33 Philadelphia Tries Different Approach Tax on Sugary Drinks – (Passed by City Council 13-4) 1.5 cents per oz At the Distribution level… Money used for ??? – What else --- EDUCATION! (primarily…) 34 17  11/14/2024 Remember - If you want less of something… TAX IT !! 35 Local Taxes Sales Tax (and excise) Income Tax (some…) Property Tax Primary component of Education Funding – Real Building Land – Personal Equipment F&F Inventory 36 18  11/14/2024 Texas – Tax free purchases… 37 38 19  11/14/2024 39 The Small “Taxes” That We Miss.. Utility Bill (Water) – Garbage Tax - $1.05 Gas – Rider FF - $4.30 – Sales Tax - $1.39 – Rider Tax - $1.83 Electricity – Gross Receipts Tax - $4.44 – Sales Tax - $3.40 40 20  11/14/2024 Cable --- sample of ‘fees’ --- or, tax? – FC Regulatory Fee-Cable - $0.08 – FC Regulatory Fee - $0.03 – TX PUC Recovery Fee - $0.04 – Regulatory Recovery-Federal - $0.25 – State Cost Recovery - $0.75 – Municipal Right-of-Way Fee - $0.92 – 911 Fee - $0.20 – Texas University Service - $1.09 – 911 Equalization Fee - $0.06 – Federal Universal Service Fee - $1.30 – PEG Capital Fee - $0.78 41 Property Taxes Real & Personal Etc. 42 21  11/14/2024 43 Real Property - 1,426 sq ft house… Harris County (Houston Area) Real Property Tax $94,000 Value Taxes = $2,700 (approx) 44 22  11/14/2024 Dallas County - 5,200 sq ft house... Dallas County $825,000 Value Approx $24,000 In property tax 45 (Business) Personal Property Typical Plant --- estimated Value of equipment, etc, $2.3M Estimated Personal Property Tax Approx $60,000 46 23  11/14/2024 47 Other “Strange” Taxes Arkansas-Tatoo Tax – 6% California-Vending Fruit Tax – 33% Colorado-Coffee Cup Lid – 2.9% N. Carolina-Pet Tax – $10/$75 (neutered cheaper) Minnesota-Fur Coat Tax – 6.5% New York-Bagel Tax – 8% (if sliced, etc) Illinois-Candy Tax – 5% (without flour) https://www.cbsnews.com/media/the-strangest-us-state-taxes-and-deductions/ 48 24  11/14/2024 Static vs. Dynamic Politicians --- Static “We need $$ --- tax them!” Economists --- Dynamic “What’s the ‘dynamic’ impact of the tax?” 49 Income Tax Practice Question Suppose the tax rate on the first $20K of income is 0%, 10% on the next $20K, 20% on the next $20K, and 30% on any additional income earned. Calculate the following: 1. Income Tax Due 2. Average Tax Rate 3. Marginal Tax Rate A. For an individual earning $35,000 B. For an individual earning $45,000 C. For an individual earning $65,000 PAUSE AND CALCULATE 50 25