 Taxes and the Economy
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1
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I earn more than my parents ever dreamed, yet it seems that I pay so much in taxes that they were better off financially. How does my tax bill compare with those of previous generations?
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 There is no one answer to this question, because tax burdens depend so much on the individual's personal circumstances. Also, the tax landscape has changed dramatically over the years. For example, income tax rates are much lower today than they were a generation ago, and yet because of changes in the definition of taxable income, individual income tax burdens are often higher than they were 20 or 30 years ago. At the same time, payroll taxes, such as the Social Security and Medicare taxes are much higher today than they once were.
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2
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What are marginal income tax rates and why was President Bush so adamant about lowering marginal tax rates in the 2001 tax cut?
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A marginal income tax rate is the tax rate levied on a taxpayer's last dollar of taxable income. This last dollar of income is often called the marginal dollar of income. For example, if an individual earns $25,001 in taxable income, the tax rate imposed on the marginal dollar of income that brings him or her from $25,000 to $25,001 is the marginal tax rate. The federal income tax employs a progressive tax rate schedule, meaning that as an individual's income increases, at certain distinct income levels there is a jump in the marginal tax rate facing the marginal dollar of income. The tax rates are levied on ranges of income, so, for example, an individual earning $6000 faces a 10 percent rate on the full amount, so her tax liability is $600. There is a jump in tax rates as income levels rise about $6,000, which means that if she earns $6,001, then she will owe 15 percent on the last dollar of income. This doesn't mean she owes $900.15 in tax (15 percent of $6,001). The 15 percent rate only applies to the last dollar, so her tax liability is $600.15.
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3
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What are Capital Gains and why are they taxed at special rates?
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capital gain arises whenever the price of an asset such as a house or shares in a corporation or mutual fund exceeds the asset's purchase price. In other words, if you buy as asset for $100 and sell it sometime later for $150, then your investment has generated a $50 capital gain. Thus, capital gains differ from income in that income represents the return to the use of factors of production such as capital and labor, whereas capital gains represent changes in the market value of capital.
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Taxes and Society
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1
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Why do I have to pay taxes?
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Oliver Wendell Holmes, former Justice of the United States Supreme Court, said, "Taxes are what we pay for a civilized society." In some respects, a "civilized society" is the rationale for government in the first place. The signers of the Declaration of Independence set out to establish a new form of government for the "protection of life, liberty, and the pursuit of happiness". To this end, the framers of our constitution enumerated the proper fiscal functions of government as "to pay the Debts and provide for the common Defense and general Welfare of the United States". Taxes are simply the preferred method for paying for these governmental functions, the other methods being the issuance of public debt and the issuance of money.
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Tax Relief
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1
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Who benefits from the President's tax relief package enacted last summer?
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When the major individual income tax provisions are fully phased in:
104 million individuals and families will receive an average tax cut of $1,040.
Nearly 43 million married couples will receive an average income tax cut of about $1,720.
Over 38 million filers with children will receive an average income tax cut of $1,460.
Over 10 million single mothers with children will be able to keep, on average, $770 more of their income.
About 13 million seniors will see their taxes reduced, on average, by $915.
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2
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How would small businesses benefit from the tax relief passed last summer?
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The tax cut will help small business: the 33 million business owners who are taxed on their business income at individual rates stand to benefit from the Bush tax cut.
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Income, Tax Liability & Payment
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1
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I think that students should be exempt from paying taxes. Wouldn't this be a way of helping children save money for their education?
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Federal income tax laws generally apply equally to all taxpayers. Under the law, every citizen or resident of the United States whose gross income exceeds specified amounts must file a Federal income tax return. Excluding a student's earnings from taxation, while imposing tax on the same amount earned by others who work full time is simply not fair. We are sure you would agree that this presents serious equity problems. The Congress often attempted in recent years to lessen, not to increase, the inequities in our tax system. The Treasury Department believes that it is best to provide tax relief through across-the-board reductions and not by exempting certain types of income from tax. In addition, there are several programs aimed at helping to fund college educations, including buying United States Savings Bonds.
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