FEDERAL TAXATION

[Music] it's on a special importance when the citizen fills out his federal income tax return and when the citizen votes in national elections the voter through representatives sent to washington ultimately decides what federal taxes we pay and how the tax money is spent the authority for federal taxation is in the constitution of the united states there it is section eight article one the congress shall have power to lay and collect taxes duties imposts and excises to pay the debts and provide for the common defense and general welfare of the united states this has required increasing sums of money through the years take the cost of defense for instance in 1914 before the first world war the annual cost of national defense was under 300 million dollars it seemed like a lot of money back then what a contrast to 1945 at the end of the second world war when defense cost for the year had soared to over 81 billion dollars an increase of over 200 times in more recent years these costs have remained at a high level due to the continued maintenance and development of our defensive forces defense is the largest single class of federal expenditure the remaining costs of government may be considered under general welfare this includes many services performed by the federal government or financed with the help of federal funds social security programs provide retirement income for the elderly financial support for widows children and others who've lost their means of support as well as aid to the disabled and unemployed such programs were not in existence prior to 1930. other programs provide for the training and rehabilitation of unemployed workers and youth training of teachers grants for medical and science research construction of schools and hospitals urban renewal projects and many many other programs not in existence 30 or 40 years ago add the factor of population growth more people using government services and you have the major reasons for our increasing federal taxes where does the money come from our major source of federal revenue accounting for about half of all money collected is the individual income tax each year millions of individuals fill out tax forms to compute how much they owe the federal government one item to be figured is total income this may include wages from a regular job along with any other sources of income such as interest earned on a savings account and gains on the sale of stock or property the total amount of income is not taxed however as each person is allowed certain deductions you can deduct portions of medical and dental expenses charitable contributions interest payments certain taxes and so on other allowances are in the form of exemptions a certain amount of income is exempt from taxation for each child or other person who is dependent upon the taxpayer for his support these exemptions and deductions are subtracted from total income and the tax is figured on the remaining amount this is done with the help of tax tables prepared by the federal government people who have regular income are required to pay their tax at regular intervals as the money is earned the tax is withheld by their employers this w-2 form tells the taxpayer and the government how much income tax has already been withheld from total wages during the year and sent in to the government a second tax paid by individuals is the social security employee tax this tax figured on a percentage of total wages goes for definite welfare benefits the employer withholds a portion of this tax from the employee's income and also contributes an equal amount personal income taxes are the largest source of federal revenue and are paid every year by millions of individual citizens the next largest item of federal revenue comes from businesses set up under state corporation laws these businesses pay a corporation income tax many large corporations have departments of lawyers and accountants that deal with their firms tax matters including state as well as federal taxes about a fourth of the money collected by the federal government comes from corporations another source of federal revenue is excises these are taxes levied on certain goods such as gasoline alcoholic beverages and tobacco lesser sources of revenue are estate taxes customs duties gift taxes and other assessments all part of the federal tax program all of you will be paying an income tax as soon as you earn enough money even if it's only from a part-time job as a taxpayer you'll want to be able to evaluate our overall tax system are the taxes fair to the taxpayer are the taxes adequate for budget needs are the taxes consistent with economic goals are the taxes economical to enforce and collect how can you judge if a tax is fair to the taxpayer well most people today accept the principle that a person should be taxed according to his ability to pay as a result we have a graduated or progressive income tax a person earning only a few hundred dollars a year must report this income but he may pay no income tax at all another person earning six thousand dollars a year pays a small percentage of his earnings someone else making forty thousand a year pays a far higher percentage of his income in federal taxes this is one provision of our tax system determined by the principle of fairness to the taxpayer it's also necessary to evaluate our tax program in terms of whether it is adequate for budget needs are the taxes sufficient to pay for the thousands of services included in the federal budget very often federal taxes in a particular year may fall short of or exceed budget needs by several billion dollars then we find ourselves asking the third question are taxes consistent with economic goals government economists sometimes try to stimulate the economy and reduce unemployment by a policy of deficit spending spending more than the government takes in and borrowing to make up the difference under other conditions economists try to prevent an economic inflation by taking in more in taxes than the government spends and using the surplus to pay off debt so taxes must also be considered in terms of their effects on the overall economy another question to consider are the taxes economical to enforce and collect each year the internal revenue service receives millions of tax forms and payments from individuals and corporations how can the government process these returns economically how can the government enforce proper payment on the part of each taxpayer modern data processing equipment cuts down on the costs of collecting federal taxes rapid and accurate checking of returns also makes taxes difficult to evade meaningful evaluation of the various aspects of the federal tax program involves asking questions such as these applying such questions to the things you read and hear about can help you become a well-informed citizen remember that the knowledge and action of each citizen is what determines the effectiveness of our system of federal taxation you