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Students learn to identify goods and services provided by the government.
Overview
Many students today have trouble understanding the concept
of taxation. They understand certain important services, such as fire and police protection, are provided to the public without direct payment. They may believe these services are free. However, middle school students are old enough to understand that goods and services provided by the government are not free, but paid for by taxes or by borrowing money from the public. Here is a fun way to get students thinking about taxes, budgeting, and government services.
This lesson is part of an eighth-grade U.S. history course. Taxation is introduced in the fall while examining the weaknesses of the Articles of Confederation. Discussions about taxes continue to take place throughout the year while discussing current events. This lesson provides a foundation for students to understand taxation and government services.
Teaching Activity
Day 1
There's no such thing as a free lunch.
The people in this country receive many services from our government. We take many of these for granted, such as sewage treatment, paved roads, and national parks. These services don't just appear to us as a gift. The government pays for them with tax revenue — income received from taxing people. One example, which should interest students in public schools, relates to how much federal tax money goes into school lunches. Some students don't pay directly for their meals, while others pay a reduced rate, and still others pay full price. However, that full price is still subsidized by the government. Generally, full price covers approximately one-half the cost of preparing the meal. Where does the rest of the money come from? Taxes, of course.
Types of Taxes
Explain the concepts of income tax, property tax, and sales tax to the class. Income tax is collected at the federal level. Most states and even some cities also have an income tax. Property tax is normally levied at the local level. Citizens who own property, such as cars, boats, buildings, or land, must pay property taxes on the value of those items. Sales tax is usually levied at the local or state level. All individuals must pay a sales tax on taxable goods at the time of purchase. The amount of sales tax is determined as a percentage of the purchase amount. Some sales taxes are special purpose taxes collected to pay for a specific program.
Lead the class in a discussion on these three types of taxes. Ask students to complete Handout 1, Types of Taxes, and discuss their answers.
What is a fair tax?
People who live under different circumstances hold different opinions on whether or not a type of tax is fair. People have a variety of income levels, numbers of dependents, medical conditions, and other situations that contribute to an individual's ability to pay taxes. Ask students to read Handout 2, What is a Fair Tax?, and use the information to record additional information on Handout 1.
Why do we pay taxes?
To help students understand that taxes pay for government-provided services, lead a brainstorming session to list some of these services. Make a list of the ideas that are generated, and engage students in a class discussion on the source of the money used to pay for these services. Explain that the government can provide services, because it collects taxes from the people that it serves. Conclude the discussion by asking students to write answers to the following questions in their social studies journals:
- What are some government-provided services which you personally use?
- How does the government pay for those services?
Day 2
There's no such thing as a free lunch or a fair tax.
People living in different circumstances and from different backgrounds see things very differently. When this occurs, tax decisions become political issues. Review benefits-received and ability-to-pay principles with the class before beginning this part of the lesson.
Assign students to small groups. Give each group a Decision-Making Grid, Handout 3, and four Role Cards. Students should discuss each role card and use the grid to determine if the described individual would support a sales tax increase, a property tax increase, or an income tax increase. Ask each group to present their cases to the class and explain why they made each decision. Lead students in a discussion on what makes a fair tax. Many people think that fair is what is best for them in their situation. Ask the class whether a fair tax is a tax that is good for the majority of people.
After completing the Decision-Making Grids and class discussions, ask students to write a brief essay called "What is a Fair Tax?" Instruct students to incorporate the concepts of ability to pay and benefits received in their essays.
Economic Concepts
Taxes Required payments of money to governments that are used to provide public goods and services for the benefit of the community as a whole. Progressive Tax A tax that takes a larger percentage of income from high-income groups than from low-income groups. Regressive Tax A tax that takes a larger percentage of income from low-income groups than from high-income groups. Proportional Tax A tax that takes the same percentage of income from all income groups. Direct Tax A tax that cannot be shifted to others (e.g., the federal income tax). Indirect Tax A tax that can be shifted to others (e.g., business property taxes). Income Tax Tax on income, both earned (e.g., salaries, wages, tips, commissions) and unearned (e.g., interest, dividends). Income taxes can be levied both on individuals (personal income tax) and businesses (business and corporate income tax). Sales Tax Taxes on retail products based on a set percentage of retail cost. Property Tax Taxes on property, especially real estate, and also boats, automobiles, recreational vehicles, and business inventories. Exemption (from tax liability) Tax law provides for a set amount which taxpayers can claim for themselves, their spouses, and eligible dependents. The total of these amounts is subtracted from adjusted gross income before any tax is computed on the remaining income. Benefits-Received Principle Those who benefit from the spending of the tax dollar should be those who pay the tax. Those who use the service pay the tax. This is not always clearly defined. Who benefits from a gasoline tax that goes to highway construction? Drivers. But what about people who use the bus or a taxi? Who benefits from a school tax? Only families with school children or society as a whole? Ability-to-Pay Principle Those who can best afford to pay taxes should pay the most taxes. Source for definitions: Understanding Taxes, U.S. Internal Revenue Service |
Handout 1
Types of Taxes
Note: The answers may differ from state to state. All questions do not have clearly right or wrong answers — even experts could disagree on some. |
Handout 2
What is a Fair Tax? There are different types of taxes. Three categories of taxes include the income tax, property tax, and sales tax. Income tax is collected at the federal level. Most states and even some cities also have an income tax. In our country, the income tax is a progressive tax, which means people with higher incomes pay a larger portion or a higher percentage of their income in taxes than people with lower incomes. Property tax is usually levied at the local level. Citizens who own property, such as cars, boats, buildings, or land, must pay property taxes on the value of those items. Sales tax is usually levied at the local or state level. All individuals must pay a sales tax on taxable goods at the time of purchase. The amount of sales tax is determined as a percentage of the purchase amount. Some sales taxes are special purpose taxes collected to pay for a specific program. The revenue from some special taxes clearly goes to pay for specific things. For example, a tax on gasoline pays for streets and highways. This is an example of the benefits-received principle. Only those who benefit from the tax pay it. Sometimes this benefit is not as easy to determine. Do people who do not drive benefit from good highways? Do people without children benefit from good schools? According to the ability-to-pay principle, those who can best afford to pay taxes should pay the most taxes. The ability-to-pay principle would tax someone earning $100,000 a year more than someone who earns $20,000 a year. These two principles are important when we try to determine what is a fair tax. People hold different opinions on which taxes are fair. They also disagree on how government should spend tax revenue. Sometimes the question of fairness involves a difference of opinion on the different rates of income tax. People who earn a higher income pay higher tax rates. This is called a progressive tax. Some people prefer a flat rate, where everyone pays the same percent of their income. Others take issue with the property tax and sales tax. Some people see property taxes as being an unfair burden on property owners. Others see the sales tax as unfair. The sales tax is proportional in one sense and regressive in another. It is proportional in that consumers pay the same rate on their purchases, whether they buy $10 or $10,000,000 a year in taxable goods. The tax is generally classified as regressive, however, because low-income consumers typically spend a higher percentage of their income on taxable goods (and hence on the tax itself) than high-income consumers do. To avoid the regressive nature of the sales tax, many states exempt food from sales taxation. |
Handout 3
Decision-Making Grid Look at each of the four alternatives and decide whether the individual on your role card would consider the tax increase fair or unfair, according to the two principles provided. Then use plus (+) or minus (-) signs to record your decisions. For example, if you think the first alternative is fair according to the ability-to-pay principle, mark a plus sign in the appropriate column.
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Role Cards
Salaries are based on averages taken from the Occupational Outlook Quarterly, 1999, published by the U.S. Department of Labor. |