DOCUMENT RESUME Mccorkle, Sarapage Agency for Instructional Technology, Bloomington, Washington, D.C.; Joint Council on Economic

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AUTHOR McCorkle, Sarapage TITLE Taxes in U.S. History. INSTITUTION Agency for Instructional Technology, Bloomington, IN.; Internal Revenue Service (Dept. of Treasury), Washington, D.C.; Joint Council on Economic Education, New York, N.Y. PUB DATE Feb 91 NOTE 39p.; The videotapes and poster that come with this kit are not included with the ERIC copy. AVAILABLE FROM Internal Revenue Service, SAL Building, Room 1055, 1111 Constitution Avenue, N.W., Washington, DC 20224 (catalog no. 126761). PUB TYPE Guides Classroom Use Teaching Guides (For Teacher) (052) Audiovisual/Non-Print Materials (100)

EDRS PRICE MF01/PCO2 Plus Postage. DESCRIPTORS *Citizenship Education; Economic Factors; *Economic Impact; *Economics Education; *Federal Government; Intermediate Grades; Junior High Schools; Middle Schools; Public Policy; Social Studies; *Taxes; Tax Rates; *United States History IDENTIFIERS *Whiskey Rebellion

ABSTRACT This instructional series is designed to enhance the teaching of U.S. history in middle and junior high school classes. This particular school resource package is comprised of three instructional videos, a teacher utilization video, a poster, and other related print materials. Each 20-minute instructional program focuses on an important issue typically taught in U.S. history courses. The video programs include:(1) "The Whiskey Rebellion: First Test of the Federal Power to Tax, 1794"; (2) "The Protective Tariff Issue, 1832"; and (3) "Fairness and the Income Tax, 1909." The programs feature characters of similar age and spirit to middle school students who explore the roles that taxation played in each of the three issues, specifically: (1) the government's need to raise revenues;(2) tax policy's influence on economic behavior; and (3) the issue of fairness in taxes. Lesson activities, discussion suggestions, and the instructional poster reinforce those issues. (EH)

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INDIANA COUNCIL FOR ECONOMIC EDUCATION PURDUE UNIVERSITY 1310 KRANNERT CENTER, ROOM 221 2 W LAFAYETTE IN 47907-1310 1: :EST COPY AVAILABLE Contents

Introduction 1

Lesson 1: "The Whiskey Rebellion: First Test of the Federal Power to Tax, 1794" 3

Lesson 2: "The Protective Tariff Issue, 1832" 8

Lesson 3: "Fairness and the Income Tax, 1909" 13

Suggested Evaluation Questions 18

Transparency and Student Handout Masters 20

Tax Information Resources Inside Back Cover A Teacher's Guide to Using Taxes in U.S. History

Guide Writer Sarapage McCorkle, University of Missouri-St. Louis

Assisted by John Patrick, Indiana University Devon Yoho, Ball State University

Reproduction of all or part of this publication for instructional use is encouraged.

The content of this guide and the video programs it describes were developed under the direction of the Joint Council on Economic Education and the Agency for Instructional Technology, with the assistance of state and economic education agencies of the 50 states, the District of Columbia, Puerto Rico, and the Department of Defense Dependents Schools. Funding for Taxes in U.S. History was provided by the Internal Revenue Service. Introduction

Taxes in U.S. History is an instructional se- ness in taxation. These themes of the eco- ries designed to enhance the teaching of U.S. nomics of taxation are also emphasized in history to middle and junior high school the lesson activities and discussions found classes. It includes three student videos, a in this teacher's guide, and on the instruc- teacher utilization video, a poster, and other tional poster. related print materials. Taxes in U.S. History contributes to the citi- Each 20-minute student program focuses on zenship education of middle and junior high an important issue typically included in school students by helping them explore the U.S. history courses. fundamental nature and history of taxes. The subject is relevant to students of this "The Whiskey Rebellion: First Test of age, more and more of whom are required to the Federal Power to Tax,1794" pay taxes as consumers, workers, savings "The Protective Tariff Issue, 1832" account owners, and even as stockholders. "Fairness and the Income Tax, 1909" As you will see in the teacher video program, Taxes in U.S. History is a flexible, easily The programs feature characters of similar adapted teaching resource. Each of the three age and spirit to your students who explore student videos is a complete program and the roles that taxation played in each of the may be shown individually. The related three issues, specifically: the government's print materials are also self-contained and need to raise revenues, tax policy's influence offer everything you need to teach and re- on economic behavior, and the issue of fair- inforce the student programs.

Introduction 1 SeriesComponents

To aid your teaching of each lesson, the guide Teacher Utilization Program provides key terms and suggestions for class "A Video Guide to Teaching Taxes in U.S. discussions. Review questions and extension History" is directed primarily to the teach- activities relate the program themes to his- ers who will use the series. It introduces the tory, economics, and taxation. Student student videos and print components by handouts and timelines suitable for making showing them being used by a typical group photocopies or overhead transparencies are of middle school students and their teacher. also provided. "Teaching Taxes in U.S. History" is designed to be viewed before teachers use the student To conclude the lessons, the guide suggests videos and lessons in their classrooms. questions that will aid your evaluation of how well students attained lesson objectives. Finally, your questions regarding workshops, additional materials, or tax educa- Student Videos tion in general may be answered by contact- ing the resources listed on the inside back The three student programs feature teenage cover. characters whose lives are affected by taxation in ways similar to your students' experi- ences. This format encourages your class to "learn along" with the programs' characters Instructional Poster as they explore the contexts and conse- The large, double-sided poster may be dis- quences of taxation. played to reinforce and extend the videos' content or to stimulate interest indepen- dently. One side incorporates key ideas, illustrations, short timelines, and questions Teacher's Guide concerning each program, that are intended This book helps you use the student videos to encourage students' analytical and criti- effectively. It describes each program's pur- cal thinking about economics and history. pose, objectives, content summary, and con- The second side features an expanded time- nection to U.S. history curricula. Together line of key events in the evolution of our the features help you determine how each federal tax system, and charts illustrating program will best suit your lesson plans. interesting tax statistics.

2 Taxes kt U.S. History 6 TheWhiskey Rebellion: First Test of the Federal Power to Tax, 1794

Paul's home, his parents remind him to Purpose mail his income tax return. His father To help students understand the basic ra- explains that taxes help the government pay tionale, nature, and consequences of taxes, for goods and services that individuals can't through an examination of the early days of provide on their own. Paul would rather save the U.S. federal government his tax payment to buy a new skateboard. Cheryl and Paul discuss possible test topics, including the Articles of Confederation, the Objectives Constitution of 1787, the Revenue Act of After completing the lesson, students will be 1789, and the 1791 Whiskey Tax. Paul skates able to explain that ahead, but just as they begin reviewing the governments need revenue in order to Whiskey Rebellion he hits a bump and provide goods and services crashes to the road. taxes are an important source of gov- Paul revives in 1794. A Whiskey Rebel is ernmental revenue pounding a Liberty Pole into the ground to protest the Whiskey Tax. A frontier post- taxes are required payments imposed rider helps Paul to his feet and takes him to by governments Bradford Inn. taxes transfer the use of resources from the private sector to the government Henry Bradford is supportive of President Washington's new government and under- stands its need to raise revenue from taxes. But Paul later hears some rebels complain Curriculum Connection that the Whiskey Tax hurts them more than This program addresses a central topic in other Americans. The region's most valu- the founding of the United States: the need able crop, corn, is often made into whiskey for revenue from taxes to establish and for easier transportation to the East, and is maintain an effective federal government. the frontier settlers' major source of cash. Standard middle school textbook treatments of this topic include the following At a torchlight gathering, Henry says that events and documents found in Lesson 1. disobeying the tax law is treason. In the excitement of the debate, Paul fades out of the Articles of Confederation 1794 and returns to the present, where he is creation of the U.S. Constitution being comforted after his skateboard acci- dent. He asks Cheryl how the Whiskey Rebel- the power to tax in Article I, Section 8, lion ended, and she explains that Washing- of the U.S. Constitution ton sent troops to make the point that all the First Federal Congress taxes must be paid. No one was hurt. the 1789 federal revenue tariff law the 1791 federal tax on whiskey the Whiskey Rebellion and its suppres- Key Terms sion by President George Washington Government goods and servicesproducts and programs provided by the federal government for the general welfare of the public Program Summary Resourcesfactors needed to produce goods Cheryl and Paul meet before school to review and services (natural, human, and capital for a U.S. history exam. Before they leave goods)

Lesson 1 3 Revenuemonies received from taxes and After Viewing the Video Program the sale of goods and services L Review the program's content and historical period with questions such as the Taxesrequired payments imposed by following. governments What are taxes? (required payments Tariffa tax levied on imported goods imposed by governments) Why do governments tax? (to govern and provide goods and services) How did the government receive reve- Teaching the Lesson nue under the Articles of Confedera- tion? (borrowed money, sold public Before Viewing the Video Program lands, and depended on the states to L Ask students if they pay any taxes and give it money) why they pay them. (Students are likely How did the Constitution of 1787 pro- to indicate that they pay sales taxes be- vide for government revenue? (The cause they must.) federal government was given the 2. Ask students to think about everything power to levy taxes.) they have done today. Ask them to iden- In the Revenue Act of 1789, how did tify which of those activities were pro- Congress decide to raise revenue? (It vided by or made possible because of imposed tariffs on imported goods.) governments. (examples: listened to the Henry Bradford told Tabby and Paul radio and got a weather report from the that taxes shift resources from use by government weather center, put a letter private individuals and companies to to a friend in the U.S. mail, took an air- government uses. Resources are things plane trip guided by air traffic control- used to produce goods and services. lers, rode on a school bus, traveled on a What examples of resources did he use public road, passed a fire station, crossed to explain? (He mentioned cloth and a bridge, etc.) people's time. After taxes, the govern- Explain that governments provide ment had money to buy cloth and pay many services and goods in addition people to produce military uniforms. to governing. To pay for the resources The cloth and workers' time were needed to perform these functions, shifted from civilian to government governments impose taxes. use.) Why did Henry support the Whiskey a Display a transparency of the Lesson 1 Tax? (He believed a strong govern- timeline (page 20). Remind students that ment was important to provide an the U.S. Constitution, ratified in 1788, army on the frontier, defense against granted the federal government the foreign powers, a postal system, a power to levy taxes. In the first federal bureau for the Western lands, and tax law of 1789, Congress imposed tariffs federal roads.) on imported goods. Later, Congress Why did rebels oppose the Whiskey levied taxes on some goods produced in Tax? (They wanted to return to taxes the United States, and today it deter- issued by the statesas under the Arti- mines income taxes. cles of Confederationto avoid federal taxes that seemed to benefit one region 4.Tell students they will view a video program about a crisis that faced President of the country at the expense of Washington a few years after the First another.) Federal Congress placed an excise tax on Why did George Washington send whiskey in 1791. Ask them to listen for troops to put down the Whiskey Re- reasons why the program's characters bellion?(It was the first test of the favor or oppose the Whiskey Tax. Present government's constitutional power to the video program. "The Whiskey Rebel- tax. He made the point that the Consti- lion: First Test of the Federal Power to tution is the law of the land and must Tax, 1794." be obeyed.)

4 Taxes In U.S. History 2.Have students summarize what they branch, representatives and the as- learned in the lesson. (Answers should sistants who helped maintain theii- parallel the lesson objectives.) offices were human resources. To conduct business efficiently, the represen- a Finally, ask students to consider the tatives needed a place to meet, discuss thought question posed on the "Whiskey issues, and vote, so they acquired Rebellion" segment of the accompanying landa natural resource. They built a poster. What if a government enacted tax meeting place and furnished it with laws but did not enforce them? (Answers desks, chairs, bookshelves, and other should be based on the main points de- equipment and suppliesall impor- veloped in this lesson.) tant capital resources.) a Explain that in addition to lawmaking duties, specific duties of the legislative Extending the Lesson branch were identified in the Constitu- tion. Divide the class into groups and Extension Activity 1: The Constitution and assign each group three powers granted the Powers of the New Government to Congress in Article I, Section 8 (con- sult a copy of the Constitution in a U.S. L Remind students that the federal govern- history textbook). Ask students to com- ment needs resources to govern and pro- plete their second copy of Student Hand- vide public goods and services. out 1 by writing "Article I, Section 8" in each box of the first column. The three Explain that there are three types of powers assigned to the group should be resources needed to produce goods and entered into the three boxes of the second services. Natural resources are pro- column. Students should fill in the third duction materials that occur in nature column with necessary resources, as in such as land, oil, and water. Human re- the following example. sources are people working to produce goods and services. Capital resources are production factors such as tools, Article/ Basic Duties/ machines, and factories. Section Power Granted Resources 2.Distribute two copies of Student Hand- Article 1, To lay and Tax collectors, out 1 (page 21) to each student. Explain Section 8 collect taxes, customs in- that students will list resources that the duties, im- spectors, posts, and assessors, government used to produce the public excises customs goods and services identified, in the U.S. buildings, tax Constitution. offices, Using a transparency of the handout. recordkeeping review instructions with students. In supplies, etc. the first column, instruct them to write "Article I" in the first box, "Arti- Ask each group to appoint a spokes- cle II" in the second box, and "Article person to report on the group's III" in the third box. Remind students assigned legislative functions and that Article I created the legislative needed resources. branch, Article II created the executive branch and Article III created the judi- To end the activity, point out that to cial branch. pay for these activities and resources, the government had to generate reve- Instruct students to write a brief de- nues through taxation. scription of the duties of each branch in the second column. (Article I: make laws; Article II: execute laws; Article Extension Activity 2: Taxes Shift Resources III: enforce and interpret laws) L Ask students to give examples of some Ask students to list in the third col- government goods and services. (armed umn resources that would be required forces, postal service, highways, dams, for the government to carry out those waste water treatment, bridges, schools, duties. (For example, in the legislative libraries, etc.)

Lesson 1 5 2.Explain that resources are factors used to Extension Activity 3: Withholding Taxes produce goods and services. Ask students L Ask students to identify the different to identify resources that are used to pro- types of taxes that they or their parents duce education in their school. (building, land, teachers, books, desks, chalk- pay. (sales, income, property) boards, athletic facilities,electricity, 2 Explain that the federal government re- etc.don't forget students, also an im- ceives most of its revenue from taxes on portant resource.) income of individuals and businesses. Remind students that resources can be Ask students what date income tax re- used to produce goods and services for turns must be filed with the Internal the government and for private indi- Revenue Service (IRS). (on or before viduals and businesses. When the gov- April 15) ernment collects taxes to buy resources, these resources can be shifted Explain that although April 15 is the from private use to public use. filing deadline, that is not the day that most people actually pay their income Explain that choices are made every- taxes. Most are paid throughout the day about how resources will be used. year, when employers withhold tax If they are used one way, then they money from each paycheck and send cannot be used in another. Opportu- the money to the IRS. nity cost is the economic term used to identify what has been given up when When employers withhold tax money a choice is made. If young people are from their workers' income, they need enlisted in the armed services, they to know important information to cannot be in the labor force producing compute the correct amount. Ask stu- private goods and services like auto- dents what kind of information they mobiles, clothes, furniture, etc. The think is needed. (how much income opportunity costs of young people the person earnsgenerally, the more enlisting in the armed services are the you earn, the more you pay) private goods and services that will Explain that employees may reduce not be produced. the amount of personal income taxes Give an example of an opportunity that are withheld from their pay- cost from your own life. (Perhaps you checks by filing a Form W-4 with their will attend a school athletic or musi- employers. (Note: There are several cal event; the opportunity cost is the ways to reduce the amount of with- homework you will not grade.) holding; however, this lesson dis- Ask students to identify opportunity cusses only the personal allowances.) costs they have incurred. (examples: 3.Distribute copies of Student Handout 3 quit the basketball team to get a part- (Form W-4, page 23). Using a transpar- time job, gave up time with friends to ency of the form, ask students to fill in spend time with parents; did home- the boxes as you provide the following work instead of calling a friend) hypothetical data. Instructions and answers are printed in italics. 3.Distribute a copy of Student Handout 2 (page 22) to each student. Read the in- David K. Suffer, an electrical engineer, structions and direct students to com- lives at 1234 Nice Street in Hometown, plete the handout, following the example MO 63011. Complete box 1 of Form W- provided in the firstline. Student 4, "Employee's Withholding Certifi- answers will be similar in the "Resource" cate," in lower half of page. His social column but will vary in the "Opportunity security number is 987-00-4321 (box Cost" column. 2). He has a wife (box 3), who is a law- yer. Now move to the Personal Allow- When students are finished, discuss ances Worksheet, in the middle of the the resources and opportunity costs form. In general, the more personal identified by the class. allowances claimed, the less tax Conclude the activity by reminding money will be withheld from pay- students that taxes shift resources checks. Complete lines A and C (enter from private uses to government uses. "0" for David's spousebecause she

6 Taxes In U.S History 1 0 also works she will file a W-4 form sity. She is very lucky because her and claim her personal exemption parents pay a lot of money for her there). Line B doesn't apply to the tuition, room and board, and books. couple. The Suiters have three chil- She must work to earn spending dren, ages 3, 4, and 6 (line D). Line E money, which she likes to use for doesn't apply. Because both parents clothes and snacks. She has worked work, they spend about $8000 a year hard saving the money she earns in on day care for their children. Com- the summer as a waitress. She has plete lines F and G; total allowances been working and paying income equals 5. Ignore the options under line taxes since she was 16. Complete G. Return to Form W-4 and complete Form W-4 for Janis using the Per- box 4. Do not complete boxes 5 and 6 to sonal Allowances Worksheet. You avoid complications. Sign the form can make up an address and social for David Sutter and write the date. security number. (Answers: Lines B, G, and 4 equal 1 allowance. Janis is a For independent practice, ask students to dependent of her parents, and cannot complete another copy of Student Hand- claim an allowance in line A. Lines out 3 using the following data. C-F and 5 don't apply. Janis doesn't meet the conditions under line 6 (she Janis Rogers is 19 years old and is a paid taxes last year), so she can't full-time student at Succeed Univer- claim exemption. Line 7 is "yes.")

Lesson 1 7 TheProtective Tariff Issue, 1832

review the events that have led to the present Purpose disagreement. To help students understand that taxes influence peoples' economic behavior Earlier in 1832, Harry leaves his family's plantation in South Carolina to attend college in the 'North. He is staying with the Gists, whose textile mill has benefited from Objectives the protective tariffs. The tariffs encourage people to buy American-made products, re- After completing the lesson, students will be ducing Matthew Gist's competition with able to explain that foreign manufacturers. tax policy can be used by a government to influence what people do Harry struggles to make his relatives understand how the protective tariffs have ruined people can avoid tax payments by not the Southern economy. They increased the buying or selling what is taxed cost of many important British as well as American goods, making Southerners un- taxes can affect different people, in dif- able to buy as much. The British, in return, ferent places, in different ways purchased less Southern cotton, and the tax exemptions or deductions can in- plantations suffered. Harry stresses that it is fluence what people do mostly Northerners who profit from the tariffs. Supporters of South Carolina's nullification Curriculum Connection proposal want to make the federal law null and void in their state. The Unionists be- This lesson focuses on the central theme lieve that such an action threatens the that taxes have influenced behavior through- states' bond as a nation. Harry's brother out U.S. history. The following events, docu- Will was caught in a fight between the two ments, and ideas in Lesson 2 are found in typical middle and junior high school groups. curricula. When Louisa visits the Gists, the tariffs and nullification are hotly debated. Harry and the American System Abby try to imagine how taxes could be used the enactment of protective tariffs to encourage people to do things, like give the rise of sectional interests money to charities. the Tariff of 1828 A newspaper article reports that President Jackson calls nullification an act of trea- the Tariff of 1832 son, and Louisa and Harry fear he will send The nullification controversy in South troops into South Carolina. They decide to return home at once. As the program ends, Carolina Harry reviews what he has learned about President Andrew Jackson's reaction how taxes can affect people's lives. to nullification

Key Terms Program Summary Tariffa tax levied on imported goods In 1832, Louisa Hampton argues with her brother, Matthew. Gist, about protective tar- Revenue tariffa tax on imported goods iffs and the nullification issue. Louisa's son, levied priinarily to generate revenue for the Harry, and Matthew's daughter, Abby, government

8 Taxes in U.S History 12 Protective tariffa tax levied on imported tariffs generated income to pay for goods for the primary purpose of reducing government operations and the provi- domestic consumption of foreign-produced sion of public goods and services. The goods government then imposed protective tariffs on some goods to protect cer- Revenuemonies received from taxes and tain American industries from for- the sale of goods and services eign competition.) Infant industrya new or developing domes- Explain that tariffs and sales of public tic industry whose costs of production are lands were the two main revenue higher than those of established firms in the sources for our early government. In same industry in other countries 1832, tariffs accounted for 89 percent of government revenue. However, some tariffs were levied not for revenue but to protect American infant Teaching the Lesson industries such as the textile industry. In the video, Matthew Gist explained Before Viewing the Video Program how protective tariffs benefited the I.Pose the following question to students: North. Ask students to identify the "How would you react if a tax of $2 were points of his argument. Write these on placed on the admission price to a the chalkboard, then help students ar- movie?" (They may attend fewer movies range them in a logical order. (exam- because of the higher price; perhaps they ple: Northern Viewpoint(1) War of will rent videotapes instead. The "law of 1812 and embargo on British trade demand" assures that fewer tickets will end: (2) U.S. consumers increase pur- be sold: As price increases, quantity de- chases of British goods; (3) U.S. manu- manded decreases.) facturers sell fewer goods and earn less income; (4) Protective tariffs en- Explain that the imposition of this acted; (5) Prices of British goods in- tax resulted in a behavior changestu- crease; (6) Consumers buy fewer Brit- dents are discouraged from attending ish goods and more U.S. goods; (7) U.S. movies because the tax has generated a manufacturing industries sell more higher price. goods and earn more income] 2. Remind students that the government Harry tells Abby and Matthew how the must levy taxes to pay for the goods and protective tariffs are hurting the services it supplies to the public. Taxes, South. Ask students to identify the however, may discourage or encourage points of the Southern position, and certain behavior. help them arrange the statements in a logicalorder. (example: Southern 3.Explain that students will view a video Viewpoint(1) War of 1812 and em- about the controversial Tariff of 1832. bargo on British trade end; (2) The Ask students to look for examples of how South buys more manufactured goods the tariffs encouraged and discouraged from Britain, which buys more cotton certain behaviors. Present the video pro- from the South; (3) Protective tariffs gram, 'The Protective Tariff Issue,1832." enacted; (4) Southerners' cost of living increases as the prices of manufactured goods rise; (5) Southern con- After Viewing the Video Program sumers buy fewer British goods and Britain earns less income; (6) Britain L Review the program's content and his- buys less cotton from the South; torical period with questions such as the (7) Southern cotton growers suffer as following. their income decreases while cost of What are tariffs? (taxes levied on im- living increases] ported goods) What behavior did the protective tar- Identify and describe the two kinds of iffs encourage? (the production and tariffs the federal government im- consumption of American manufac- posed in the early 1800s. (Revenue tured goods)

Lesson 2 9 13' What behavior did the protective tar- b. Federal policy focuses on promoting iffs discourage? (consumption of Brit- productivity, growth, and economic ish goods) development of the Union. Henry Clay names this the "American System." Harry tells Abby that his brother Will The policy's main measure is the pro- was caught in a fight in South Caro- tective tariff, which encourages man- lina. Who was fighting? (the Nullrs ufacturing and purchase of American and the Unionists) goods and reduces imports of goods What did the Nullifiers want? (to get from Europe. rid of the protective tariffs, which c. The Tariff of 1816 provides protection they viewed as unfair, by nullifying to several industries. It is designed to the federal tariff law) be a temporary measure but becomes A How did President Andrew Jackson an essential part of the American react to the nullification movement? System. (He declared that nullification, the d. The Tariff of 1824 raises tariffs from power of one state to annul a federal an average of 25 percent of the value of law, was incompatible with the idea of imported goods to an average of about the Union. He considered it treason.) 33 percent. Abby and Harly thought it would be e. The Tariff of 1828, the so-called Tariff nice if taxes could influence behavior of Abominations, raises the average they preferred. What were their sug- tariff to 50 percent of the value of an gestions? (income tax deductions to imported good. It imposes especially encourage charitable contributions; heavy rates on iron, wool, hemp, and tax exemptions or deductions to en- finished woolens. The South is ex- courage college educations) tremely displeased. Some Northern- Have students summarize what they ers are displeased about high tariffs learned in the lesson. (Responses on the raw materials they need to pro- should parallel the lesson objectives.) duce goods. f. After Andrew Jackson is elected Pres- 2.Conclude the lesson by asking for an- ident, Congress debates a reduction in swers to the thought question printed on the tariffs and enacts the Tariff of the "Protective Tariff Issue" segment of 1832, reducing duties to an average of the accompanying poster: Under what 33 percentthe average level in 1824. circumstances should the government g This reduction is unacceptable to the use tax policy to influence what people South because the tariff is still highly do? (Answers should be based on the protective. South Carolina Senator main points developed in this lesson.) John C. Calhoun suggests that a state could declare a federal law null and void. South Carolina issues an Ordi- nance of Nullification, declaring the Extending the Lesson tariffs of 1828 and 1832 null and void. It threatens secession if the federal Extension Activity 1 Tariffs and government tries to enforce the NullificationA Compromise tariffs. 1.Using a transparency of the Lesson 2 h. President Jackson indicates that he is timeline (page 24), review the series of flexible on the tariffs but firm against events that led to South Carolina's nullification.He suggeststhat Ordinance of Nullification and President Congress lower import duties, but also Jackson's military response. sends. troops to the federal forts in Charleston,S.C. As thecrisis a. After the War of 1812, the federal gov- worsens, Calhoun and other Congres- ernment needs revenue to pay off the sional leaders push for a compromise. war debt and to provide public goods for a growing nation. Revenue comes primarily from tariffs and the sale of 2.Explain to students that they will try to public lands. develop a compromise tariff to avoid 10Taxes InU.SHistory '4 possible secession of South Carolina the economic decisions of individuals from the Union and a devastating war and businesses. over nationalism and states' rights. Divide the class into small groups of 2.Distribute a copy of Student Handout 5 about four to five students. Each group (page 26) to each student. Using a trans- will represent the viewpoint of a sena- parency of the handout, read the instruc- tor in the North, South, or West. Give tions and complete the answers as a class each group one of the senator descrip- or assign as homework. tions in Student Handout 4 (page 25). The first change in tax policy has been Ask students to read the senator's completed for the students. Because opinions and prepare a short, per- the new tariff increased the price of suasive speech about protective tariffs foreign textiles, Americans were dis- and the issue of nullification. A couraged from buying the more expen- spokesperson for the group will pre- sive foreign products and encouraged sent the speech to the class. to purchase cheaper American ones. After each group has presented its Complete the next example of a de- arguments, ask them to consider what crease in a tariff on iron. In this case, compromises they are willing to make to reduce the undesirable economic a lower tariff reduces the price of iron. impact of the tariff and thus avoid Americans would be encouraged to buy war. Ask for specific recommenda- cheaper foreign iron and discouraged tions on tariff rates and an implemen- from purchasing more expensive tation plan. Encourage groups to nego- American iron. tiate with one another to resolve their Item #3 indicates that tax deductions conflicts. are available for charitable contributions. Ask students how the U.S. gov- Ask the class to convene as a session ernment collects most of its taxes of Congress. Ask the groups to describe today. (personal and business income their recommendations for a com- taxes) Explain that taxpayers are able promise. Vote on the compromise to reduce the amount of income on proposals. which they pay taxes through deduc- Compare the class resolution to the tions and exemptions. What type of be- Compromise Tariff of 1833. Explain havior might this new policy change? that John Calhoun and Henry Clay (People might give more money to were very concerned about avoiding a charities rather than paying itin war. They worked hard to negotiate the taxes. It is difficult to make a case for compromise, which lowered tariffs in a behavior that will be discouraged.) slow stages to the 20 percent level by In the case of item #4, taxpayers are 1842. Congress approved this plan, but allowed a deduction for the interest refused to compromise on the issue of they pay on home mortgages. This nullification. South Carolina then ac- might encourage the purchase of cepted the Compromise Tariff and re- homes and discourage renting apart- scinded its Ordinance of Nullification. ments or houses. A major challenge to the U.S. Consti- tution and to the principle of majority In item #5, taxpayers are discouraged rule was successfully met. from making purchases with credit cards if they cannot deduct the interest. The policy might encourage pay- Extension Activity 2: Taxes Influence ing with cash or saving for a large Economic Behavior purchase. L Ask students to explain why govern- In item #6, taxpayers are exempt from ments impose taxes. (to pay for public paying taxes on interest earned on goods and services) U.S. savings bonds. This might encourage people to save money with fed- Explain that when taxes are imposed eral bonds and discourage saving in they will affect people in different other forms, such as a C.D. (certificate ways and will encourage or discourage of deposit).

Lesson 211 1,5 Extension Activity 3: Changing Behavior Complete Step 5. The Smiths have no through Tax DeductionsThe IRA Deduction adjustments to income (lines 15a-c). L Explain that students will act as profes- In this case, their adjusted gross in- sional tax form preparers and complete a come on line 16 is equal to their total sample form that is used by millions of income ($37,576). families in the U.S.the 1040A. This In Step 6, fill in line 17 (lines 18a-c form allows the IRA (Individual Retire- don't apply). Enter on line 19 the stan- ment Account) deduction that encourages dard deduction for a married couple a certain type of behavior. filing jointly: $5,450 in 1990. Com- plete lines 20-22 to calculate taxable 2.Distribute copies of Student Handout 6 income ($37,576$5,450$8,200 = (Form 1040A, pages 27-28). Using a $23,926). transparency of the form, work through Complete Step 7. Display a transpar- it with students using the following ency of the Sample Tax Table (page 29) information. NOTE: Form 1040A refers to let students locate the taxes the to a variety of exemption and deduction Smiths must pay on their taxable in- situations, most of which have been come ($3,589check "tax table" box in ignored to simplify this activity. The in- line 23). Assume that the taxes with- formation in parentheses below will held and reported on the Smiths' W-2 help students complete only the perti- forms were $4,300 (enter on line 28a; nent computations for this exercise. Cor- lines 24a-b, 26, and 28b-c don't apply rect answers are shown in italics. to the Smiths). Complete Step 8. Ex- John and Mary Smith live at 378 N. plain that because more taxes were Oak St. in Farmington, IA 50233. withheld from the Smiths than they Their social security numbers are 488- owe, they are eligible for a tax refund 00 -2323 and 488-00-9834, respec- of $711. tively. Complete Step 1 on the 1040A form (students can decide if the 3.Distribute a second copy of Form 1040A. Smiths will contribute to the Presi- Ask students to complete steps 1 through dential Election Campaign Fund). 4 as before. Return to Step 5. Explain that the Smiths decided this year to save John and Mary are married and will money in IRAs for their retirement. file a joint return. Complete Step 2 John saved enough in his IRA to earn a (check the box in line 2 only). $1500 deduction; Mary earned a $1000 In Step 3, the Smiths can declare their deduction from hers (lines 15a-b). Com- exemptions. Explain that Congress in- plete this step showing the change in cluded exemptions for each member of total adjustments and how adjusted the family so that even families with gross income has been reduced by $2500 low incomes will not pay taxes so high (line 15c) to $35,076. that they do not have enough left for In Step 6, ask students to calculate the their living expenses. [The issue of new taxable income level (lines 19-21 whether someone is a qualified depen- remain constant): $35,076$5,450- dent (line 6d) is ignored in this lesson.] The Smiths have two children, Jane $8,200 = $21,426. Find the tax due ac- (age 13, SSN 453-00-2816) and Eric cording to the tax table ($3,214enter (age 10, SSN 467-00-3928). Both chil- on lines 23, 25, and 27). dren live at home. Complete Step 3 (4 Ask what has happened to the Smiths' exemptions, total). tax bill. (It has decreased from $3,589 John works as a printer and earned to $3,214a tax savings of $375.) Have $20,800 last year. Mary works as a students compute the Smiths' refund nurse and earned $16,540 last year. (lines 29 and 30) and sign the form. They earned $236 in interest on their Ask students what behavior is encour- savings account (taxable interest in- aged with gross income reductions for comeline 8a). They had no other IRAs. (People are encouraged to in- sources of income (lines 8b, 9, 10). crease their savings for retirement, Complete Step 4 (total income on line because the additional savings reduces 14 = $37,576). the amount of tax owed.)

12Taxes In U.S History 16 Fairness and the Income Tax, 1909

car. Mr. Bennison reacts to a newspaper ar- Purpose ticle, commenting that a federal income tax To help students understand that it is diffi- was once declared unconstitutional and cult to reach agreement on the question, should stay that way. "What is a fair tax?" At a nearby garage, Jerome Bailey tells his son, Cal, that a constitutional amendment to establish an income tax would be impor- Objectives tant. The Bennisons arrive with their car After completing the lesson, students will be and Chris and Cal find that they share a pas- able to explain that sion for car racing. whenever taxes are imposed, the issue The boys discuss taxes. Chris's father be- of fairness is raised lieves the excise and tariff laws tax and benefit everyone equally. Cal points out that ability to pay is one measure of tax less wealthy people don't have the ability to fairness pay the same amount of taxes. it is difficult to reach agreement on what is a fair tax Chris tries to make his father see the Baileys' point of view. But Mr. Bennison be- lieves an income tax would leave him less money to invest in making his business Curriculum Connection prosperous. This would lead to fewer jobs for This program addresses the issue of fairness workers. in taxation and the efforts to implement a The flashback ends and Grandpa explains progressive income tax during the Populist/ that the 16th Amendment was ratified in Progressive Era. Standard junior high and 1913 and Congress passed an income tax middle school textbook treatments of this law, but people still argue about the fairness subject include the following ideas found in of income taxes. Katie wonders what makes Lesson 3. a tax fair. President Theodore Roosevelt's strong beliefs in progressivism the idea that government can use its power to ensure fair treatment of busi- Key Terms ness, labor, and the public Ability to paya criterion of tax fairness the idea of a progressive income tax as wherein people with higher incomes or more a seemingly fair way to provide reve- wealth pay higher taxes nues that would pay for the activities of Progressive (or graduated) income taxa sys- an increasingly powerful government tem where people with higher incomes pay a higher portion (percentage) of their income in taxes Program Summary Katie complains that the income tax is un- faira co-worker earning more money than Teaching the Lesson she earns pays less in taxes because he is married. Her grandfather muses about how Before Viewing the Video Program people always argue the fairness of taxes. L Explain that whenever taxes are im- In a flashback to 1909, Chris Bennison posed, the fairness of what should be (Grandpa's father) tries to start his father's taxed, who should pay the taxes, and how

Lesson 313 17 much they should pay is always debated. same, he believed the tax was fair. Ask students to identify as many taxes as What did Cal argue? (Cal said the tax they can. (sales tax, gasoline tax, real took a higher portion of poor people's estate tax, personal property tax, state income than of rich people's, so it was income tax, federal income tax, etc.) a greater burden on poor people.) Ask students to explain why they What principle of tax fairness did Cal think these taxes are fair or unfair. say was important to consider? (abil- (Answers will vary, but keep students ity to paypeople who earn more in- focused on the idea that people have come should pay more taxes) different ideas about fairness.) What did President Taft want, regarding taxes? (a constitutional amend- 2..Explain that many Americans through ment providing for an income tax) history wanted to have a tax on people's income because revenues from tariffs Why was Mr. Bennison opposed to the were inadequate to support a growing income tax? a businessman he be- government. Income tax laws were en- lieved an income tax would leave him acted by the Union during the Civil War with less money to spend and invest in and again in 1894. The first law was making his business prosper.) abolished in 1872 and the second was de- Mr. Bennison was concerned that if clared unconstitutional by the Supreme the 16th Amendment were ratified, Court in 1895. But sentiment for an in- Congress might enact a graduated income tax grew, and Congress proposed an come tax. How would such a tax work? amendment to the Constitution that (People would pay a higher portion of would permit such a tax. their earnings on taxes as their in- 3.Explain that students will view a video comes increased.) set in 1909 about some supporters and Would Cal support a graduated income opposers of the 16th Amendment. Ask tax? (yes, because it would be based on students to listen for why the characters the ability to pay) think an income tax would be fair or unfair. Present the video program, "Fair- Are people happy with the income ness and the Income Tax, 1909." tax? (not everyonesome still argue about what makes a tax fair) After Viewing the Video Program 2. Have students summarize what they 1.Display a transparency of the Lesson 3 learned in the lesson. (Answers should timeline (page 30). Review the program's parallel the lesson objectives.) content and historical period with questions such as the following. 3.Finally, conclude the lesson by asking students to answer the thought question Why did Katie have money withheld posed on the "Fairness and the Income from her paycheck? (She had to pay Tax" segment of the accompanying income taxes on what she earned.) poster: What makes a tax fair? (Answers Why did Katie think the tax was un- should reflect the main points developed fair? (Jose, another worker, was hav- in this lesson.) ing less tax withheld from his paycheck because he was married, even though he earned more.) Extending the Lesson Before the 16th Amendment was passed, what kinds of taxes provided Extension Activity 1: Income Tax Editorials government revenues? (tariffs on im- L Explain that at the turn of the century ported goods and excise taxes on the the U.S. government was spending more sale or use of some goods and services) money on more government services Chris reminded Cal that they would then ever before. Farmers wanted an ex- pay the same tax if they each bought tension service to provide educational an imported British engine or a set of and agricultural help. Westerners wanted tires. Because they would pay the public irrigation, land reclamation, and

14Taxes in U.S. History 18 conservation of natural resources. More After students have completed their public employees were needed to work in writing, have each group paste their government regulatory agencies. More sections on poster board to form an money was used for the nation's expan- editorial page. (Note: In schools where sion into the Far East and Latin Amer- computers are available, have stu- ica. The rapidly growing urban popula- dents type their sections, and even de- tion demanded more transportation, sign and print the page, if possible.) communication, recreation, housing, education, fire and police protection, Have students read other groups' edi- sanitation, and welfare. The government torial pages and discuss questions had a revenue problem and needed a way such as: Who was in favor and who op- to solve it. Some people proposed an in- posed ratification of the 16th Amend- come tax as the best solution. ment? Why did they favor or oppose it? What did the readers have to gain Explain that among all these demands or lose by the amendment? on the government were concerns about equity (fairness). Many people a Conclude the activity by explaining that were concerned about the enormous by early 1913, three-fourths of the states fortunes that a few industrial families had ratified the 16th Amendment, in- were building. In 1910, the top four cluding all states west of the Mississippi percent of American families received River except Utah. Southern states also nearly 33 percent of the nation's in- supported it. The East was slower to come, while the poorest 65 percent ratify, but strong Progressive voices pre- earned about 14 percent. The rich were vailed and many states eventually ap- becoming richer; the poor were becom- proved the amendment. New York rati- ing poorer. fied it on a second try. 2. Show students an editorial page in a newspaper. Discuss the sections included Extension Activity 2: What Is a Fair Tax? (editorial, editorial cartoon, and letters 1.Explain that it is difficult for people to to the editor). Ask students to define the agree on the fairness of taxes. One prin- purpose of each section. (The editorial ciple of fairness that most people accept expresses the opinions of the editor, the is the ability to pay taxes, based on one's editorial cartoon is an often humorous income. In our progressive income tax or sarcastic representation of a contro- system, people with higher incomes pay versial topic, and the letters are sent to a higher percentage of their income on the newspaper by individuals who want taxes than people with lower incomes. to state their views.) For example, a family might pay 15 per- Divide the class into three groups. cent on the first $32,000 in income. Then Explain that each group will represent it might pay 28 percent on its income a newspaper in 1909 that has a spe- from $32,000 to $78,000. On its income cific point of view toward ratification above $78,000, it might pay 33 percent. of the proposed 16th Amendment. Distribute copies of Student Handout 8 Each group will divide the work (page 32) and discuss the instructions. among its members to create an edi- Students are given four tax case torial page: one student will be the edi- studies of eight families to examine tor and write an editorial favoring or and determine what portion of each opposing the amendment; another family's income is paid in taxes. Stu- will develop a related editorial car- dents must also determine if the tax is toon; and the rest of the group will based on ability to pay, and if the tax write letters to the editor, supporting is fair. or rejecting the amendment. Give each group a section of Student Handout 7 Display a transparency of Student (page 31). which describes the opinions Handout 8 and help students through of a Populist newspaper in Kansas, a the first case study. Explain that the Progressive newspaper in Cleveland, tax law allows personal exemptions of Ohio, and a conservative Republican $2,050 for each family member. Fam- newspaper in New York City. ily B will be able to reduce its total

Lesson 315 1 taxable income by a larger amount a Ask students to think about taxes they or than Family A because B has more their families have paid. Have them children. As a result, the portion of in- discuss why they think the taxes are fair come paid on taxes is 11 percent for or unfair. Family A ($4,624 + $42,000 x 100) and 8.9 percent for family B ($3,724 + $42,000 x 100). Students may argue Extension Activity 3: The Income Tax that this tax is based on ability to pay Structure because the family with more children 1.Explain that every year millions of peo- is less able to pay income taxes than ple file a tax return with the Internal the smaller family. Encourage discus- Revenue Service (IRS). There are three sion of whether this is fair. basic forms for individuals and families: Continue working with the class on 1040EZ, 1040A, and 1040. The form that the next three cases or assign as inde- people use depends on their income, pendent practice. filingstatus,and taxdeduction circumstances. The second case considers the so- Students will probably use Form cial security tax. In 1990, the fed- 1040EZ the first time they file an in- eral government assessed a 7.65 come tax report. The 1040EZ is the percent tax on income up to $51,300 simplest tax form, designed for single for social security payments. Fam- taxpayers who are under 65, not blind, ily C spends 7.65 percent of its in- and earn incomes less than $50,000. come on social security taxes, but Form 1040A is a little more compli- Family D spends only 3.9 percent of cated, but allows taxpayers to claim a its total income on those taxes. deduction for an Individual Retire- Family D has a lower percentage ment Account (IRA). (See Lesson 2, Ex- because it doesn't have to pay the tension Activity 3 on page 12.) tax on any income over $51,300. Clearly, this tax violates the prin- Explain that Form 1040 is designed ciple of ability to pay. Students for more complicated tax reports, al- may think this tax is unfair be- though it can also be used for simple, cause richer people pay a smaller short reports. The form may be more portion of their incomes on social involved than the others, but students security taxes. can learn from it important aspects of our basic income tax structure. In case 3, Family E spends 19 percent of its income on taxes, and 2.Distribute Student Handout 9 (page 33) Family F spends 15.4 percent of its and display a transparency of the page, income. Why is the percentage indicating that students should complete higher for Family E than Family the boxes as they discuss how Form 1040 F? The federal government allows a works. tax deduction for interest paid on home mortgage loans. This reduces Explain that the first tax information the amount of gross income on that must be provided on Form 1040 is which taxes must be paid. This tax the income earned by the taxpayer. policy is not based on ability to pay Ask students to identify sources of in- because people with the same income (wages, salaries, interest, divi- come and expenses pay different dends, rent, and profit). Explain that rates. Students might think this is taxpayers must add all these incomes unfair. Encourage discussion. and report the total income. Direct students to write "Income" in box 1. Family G's tax liability is 8.4 per- Next, explain that some people can cent of its income. Family H must make adjustments to income to reduce pay 20.9 percent of its income. In the total on which they will pay taxes. this case, tax liability is clearly The IRA deduction is a very common based on the ability-to-pay prin- adjustment. Direct students to write ciple. Students will probably think "Adjustments to Income" in box 2 on this is fair. Encourage discussion. the handout.

16Taxes In U.S. History 20 Point out that the adjustments to in- justed gross income. Ask students to come are subtracted from total income write Income After Deductions" in to calculate adjusted gross income. Di- box 6. rect students to write "Adjusted Gross Taxpayers can also subtract personal Income" in box 3. exemptions. Typically, these are al- Explain that taxpayers do not pay lowed for each family member living taxes on their adjusted gross income, in the home. In 1990, an exemption of because they can still subtract from it $2,050 was allowed for each eligible certain tax deductions and exemp- person. Ask students to explain why tions to lower their taxable income. they think these exemptions are in- There are two types of deductions: cluded. (Once again, the issue of tax itemized and standard. fairness in terms of ability to pay is Over the years, Congress has identi- involved. Families that have more fied several family expenses as deduc- members to support would have less tions, and to claim these, taxpayers money available to pay taxes.) Di- must complete a separate form: Sched- rect students to write "Exemptions" in ule A, Form 1040. Have students write box 7. Itemized Deductions" in box 4. Some Ask students to write "taxable in- expenses that are deductible include: come" in box 8. This is the remaining very high medical and dental ex- figure after exemptions have been sub- penses, state and local income taxes, tracted. It is an important number, be- real estate taxes, personal property cause this is the amount of income on taxes, interest that people pay on which taxpayers must pay taxes. The home mortgages, contributions to tax is computed by using tax tables or charitable organizations, costly casu- a tax rate schedule provided by the alties (such as tornado or flood dam- government. age to a home) or a large theft, and sometimes, moving expenses because Direct students to the Sample Tax Schedule at the bottom of Handout 9. of job relocation. Ask them to note that the percentages Ask students why they think the fede- of tax that must be paid on higher in- ral government allows these deduc- comes increases. Why? (The federal tions.(Students may argue that they government has implemented a pro- are based on a fairness criterion: If gressive tax structure. People with people have very high medical bills or higher incomes must pay a larger por- a serious loss, they may be unable to tion of their income on taxes than pay taxes at a higher level. This could people with lower incomes. This is be argued from an ability-to-pay per- based on the fairness criterion of abil- spective. However, the home mortgage ity to pay.) Ask students to compute interest is more difficult to argue with the tax due on a taxable income of this fairness criterion.) $80,000.f$17,733.50 + (0.33 x Point out that if people do not have ($80,000- $78,400)) = $18,261.50J very many deductions, the government provides for a standard deduc- 3. Remind students that taxpayers must tion. The amount that an individual keep good records so they can report ac- or family receives depends on their curate income, deduction, and exemption filing status. The standard deduction information to the IRS. Explain that the in 1990 for a married couple filing IRS depends on honest reporting, but jointly was $5,450. Complete box 5, does conduct random audits (checks) on writing "Standard Deduction." tax reports to make sure that people file correctly. If taxpayers fail to report accu- Explain that the standard or itemized rate information, they may be subject to deductions are subtracted from ad- penalties.

2 Lesson 3 17 SuggestedEvaluation Questions

Lesson 1"The Whiskey Rebellion: First Test of the Federal Power to Tax, 1794" 1. The federal government needs revenue from taxes to pay for a.highways, armed forces, and jewelry b.highways, armed forces, and federal courts c.armed forces, federal courts, and rock concerts d.federal courts, children's toys, and video games

2. An example of shifting resources from private to public (government) use is a.using steel to produce more aircraft carriers and giving up bridges b.using concrete to produce more prisons and giving up highways c.using rubber to produce more tires for mail trucks and giving up tires for family cars d.using cloth to produce more personal clothing and giving up military uniforms

3. Which of the following became an important source of government revenue when the U.S. Constitution was adopted in 1788? a.a lottery b. borrowing money from the states C. taxes d.selling public land

4. Which of the following statements best describes why George Washington sent troops to put down the Whiskey Rebellion? a. The Whiskey Tax was unfair to farmers. b. Taxes are required payments imposed by governments. c.The legislature of Pennsylvania declared the Whiskey Tax -uncollectible. d. Corn farmers were attacking whiskey mills.

Lesson 2"The Protective Tariff Issue, 1832"

1.U.S. tariffs on foreign automobiles would a.encourage people to buy more imported automobiles b.discourage people from buying American automobiles C. discourage people from buying foreign automobiles d.encourage people to buy more imported and more American automobiles

18 Taxes h U.S. History 22 2. A tax deduction for interest paid on home mortgages encourages a.people to buy houses b.people to rent apartments c.home builders to build fewer houses d.people to pay cash for their homes

3. Which of the following statements best describes why governments collect taxes? a.Governments collect taxes to encourage the sale of public land. b. Governments can use taxes to influence what people do. C. Governments use taxes to provide services. d. b and c

4. The program showed that when a tax is imposed a.everyone is affected in the same way b.everyone benefits from it c.different people are affected in different ways d.it does not affect people's lives

Lesson 3"Fairness and the Income Tax, 1909" 1. The issue of fairness in taxation focuses on a. what should be taxed b. who ought to pay c.how much should be paid d.all of the above e.none of the above

2. Which of the following statements best describes the "ability-to-pay" measure of tax fairness? a.People should be allowed to pay taxes in cash, by check, or with a credit card. b.People with higher incomes should pay more taxes. c.People should have their taxes taken out of their paychecks. d.People should start paying taxes when they are in their forties.

3. Which of the following statements best describes the main idea in the video program? a.Racing teams don't often make money when they are run by two boys. b.Chris needs to go to engineering college before starting a company. c.Cal's race car will not run without blueprints to guide his work. d.It is difficult to reach agreement on what is a fair tax.

Answers Lesson 1 Lb 2.c &c 4. b Lesson 2 Lc 2.a &d 4.c Lesson 3 Ld 2.b &d

23 Suggested Evaluation Questions 19 Lesson 1: Transparency Ma &ter

Timeline of Events: 1781-1794

1781 Articles of Confederation ratified without giving the Confederation Congress the power to tax

1787 Constitutional Convention meets and considers the issue of taxation

1788 Constitution of the United States ratified, giving the new Federal government power to tax

1789 First Congress meets and enacts the first Federal tax law

1791 Congress enacts Whiskey Tax

1794 Whiskey Rebellion occurs and is suppressed by the Federal government

20 Taxes in U.S. History 24 Lesson 1: Student Handout 1

Name Date The Constitution and the Powers of the New Government

The Articles of the Constitution defined how the federal government would accomplish the goals of the Preamble. Specific powers of the government were established throughout the document, especially in Article I, Section 8. Using the following chart and a copy of the Constitution, list specific examples of resources the government needed to implement its powers.

Basic Duties/ Article/Section Power Granted Resources

Taxes In U.S. History 21 25 sson 1: Student Handout 2

Name Date Taxes Shift Resources

Resources are factors used to produce goods and services in our economy. These resources can be used to produce private goods and services for individuals and businesses or they can be used by the government for providing government goods and services. The amount of resources available in our economy is limited. If the government uses tax money for resources to provide government goods and services,then some private goods and services must be given up. Opportunity cost is the economic term used to identify what has been given up when a choice is made. In the chart below, read each event and identify the resource that is shifted to public use. Then identify a possible private good or service that may be given up (opportunity cost).

Event Resource Opportunity Cost More people find jobs workers construction of houses or office building new postroads. buildings

The U.S. Postal Service orders more mail wagons.

More people are moving to the Western frontier and a larger army is needed to protect citizens. The government decides to start a navy.

The government decides to build canals for trade and transportation.

Tax collectors are hired by the government to collect taxes and enforce tax laws. Customs houses are built in ports for inspection of imported goods and collection of duties.

22 Taxes In U.S. History 26 Lesson 1: Student Handout 3

Name Date

Withholding Taxes

iDepartment of the Treasury Internal Revenue Service Form VV-4 v. W4. This total should be divided among alljobs. 1690 entitled to claim. However, you may claim fewer Your withholding will usually be most accurate Pu pose. Complete Form W.4 so that your allowances than this. filed employer can withhold the correct amountof when all allowances are claimed on the W -4 Head of Household. Generally, you may claim for the highest paying job and zero allowances Federal income tax from your pay. return Exemption From Withholding. Read line 6 of the head of household filing status on your tax are claimed for the others. only it you are unmarried and pay more than50% Advance Earned Income Credit. If you are certificate below to see if you can claim exempt and added to status. If exempt, complete line 6; but do not of the costs of keeping up a home for yourself eligible for this credit, you can receive it your dependents) or other qualifyingindividuals, For details. complete lines 4 and 5. No Federal income tax your paycheck throughout the year. will be withheld from your pay. Thisexemption Nonvrage Income. If you have a large amountof obtain Form W-5 from your employer. dividends. Check Your Withholding. After your W.4 takes expires February 15. 1991. nonwage income, such as interest or My Basic Instructions. Employees who are not you should consider making estimatedtax effect, you can use Publication 919, Is Allowances payments using Form 1040-ES. Otherwise, you Withholding Correct for 1990 ?, to see how the exempt should complete the Personal the end of dollar amount you are having withheld compares Worksheet. Additional worksheets are provided on may find that you owe additional tax at 1.800 - withholding to your estimated total annual tax. Call page 2 for employees to adjust their the year. 424.3676 (in Hawaii and Alaska, check yourlocal allowances based on itemized deductions, Two-Earner/TwoJobs. If you have a working the total telephone directory) to order this publication. adjustments to income, or two-earner/two-job spouse or more than one job, figure Check your local telephone directory for theIRS situations. Complete all worksheets that apply to number of allowances you are entitled to claim help you figure assistance number if you need further help. your situation. The worksheets will on all jobs using worksheets from only oneForm the number of withholding allowances you are Personal Allowances Worksheet A claim you as a dependent A Enter "1" for yourself if no one else can 1. You are single and have only one job; or B andyourspouse does not work; or BEnter "1' if: 2. You are married, have only one job, spouse's wages (or the total of 3. Your wages from a second job or your both) are $2,500 or less. choose to enter "0" if you are married andhave either a working spouse or C Enter "1" for your spouse. But, you may C more than one job (this may help youavoid having too little tax withheld) D than your spouse or yourself) whom youwill claim on your tax return 0 Enter number of dependents (other E. your tax return (see conditions under"Head of Household," above) . Enter "1" if you will file as a head of household on . . F E child or dependent care expenses for which youplan to claim a credit . _ F Enter "1" if you have at least $1,500 of G here G Add lines A through F and enter total adjustments to Income and want to reduce yourwithholding, If you plan to Itemize or claim Worksheet on page 2. turn to the Deductions and Adjustments job and your combined earnings from alljobs exceed If you are single and have more than one working spouse or more than one job,and the For accuracy, do $25,000 OR if you are married and have a Worksheet all worksheets that combined earnings from all jobs exceed$44,000, then turn to the Two-Earner/Two-Job apply. too little tax withheld. on page 2 if you want to avoid having stop here and enter the numberfrom line G on If neither of the above situations applies to you, line 4 of Form W4 below.

employer. Keep the top portion for your records. Cut here and give the certificate to your OMB Na. Isasooto Allowance Certificate I Employee's Withholding Form W-4 Act Notice, see reverse. 1690 Department of the Treasury For Privacy Act and Paperwork Reduction Internal Revenue Service 2 Your social security number Last name iType or print your first name and middleinitial Single 0 Married Home address (number and street or ruralroute) 3 Marital Married, but withhold at higher Single rate. status Note: If married, but legally separated, or spouseis a City or town, state, and ZIP code nonresident alien, check the Single box. 4 Worksheets on back if they apply). claiming (from line G above or from the $ 4 Total number of allowances you are 5, deducted from each pay 5 Additional amount, if any, you want conditions for exemption: I certify that I meet ALL of the following 6 I claim exemption from withholding and i , Federal income tax withheld because I hadNO tax liability; AND Last year I had a right to a refund of ALL income tax withheld because I expect tohave NO tax liability; AND This year I expect a refund of ALL Federal cannot claim me as a de endent.% /// includes nonwage income, another person This year if my income exceeds $500 and 6 19 enter the year effective and 'EXEMPT"here If you meet all of the above conditions, I 7 0 Yes 0 No Full-time students are not automaticallyexempt ) 7 Are you a full -time student? (Note: this certificate of entitled to claim exempt status. to the number of withholding allowances clamed on Under penalties of perjury. I certify that I am entitled 19 Date Employee's signature 10 Employer identification number (Employer: Complete 8 and 10 only Ifsending to IRS) 9 Office code 8 Employer's name and address (optional)

27 Taxes In us.History23

BEST COPYMAILABLE Lesson 2:TYaasparencyMaster

Timeline of Events: 1812-1833

1812 Embargo placed on the import of British goods during War of 1812

1815 War ends; lower-priced British manufactured goods again sold in U.S. markets

1816 Congress adopts a tariff protecting U.S. industries from foreign competition

1824 Tariff raised because Britain is still able to compete effectively with American industries

1828 Protective tariff raised again to better protect U.S. industries; is labeled the "Tariff of Abominations"

1832 Protective tariff modified to make it more acceptable, but Nullification Crisis occursSouth Carolina declares modified tariff "null, void, and no law"

1833 Nullification Crisis ends when the Federal Government establishes and South Carolina accepts Compromise Tariff, returning rates to 1816 levels by 1842

24 Taxes in U.S. History 28 Lesson 2: Student Handout 4 Taxes and Nullification: A Compromise

Senator from Massachusetts The Facts turers in your area need to produce goods and An embargo on British goods during the War services. of 1812 allowed U.S. infant industries to Protective tariffs help your constituents sell grow and prosper. When the embargo was products at higher prices, but they can't be lifted, manufacturers in your state were too high or people won't buy as many and threatened by foreign competition. revenue will decrease. The country is growing rapidly and Ameri- cans will be eager to buy more goods. In Your Opinion... The government needs revenue to provide It is important to give infant industries a important public goods and services, such as fair chance to become world competitors and the Cumberland Road, and to pay off its war provide employment to Americans.... The debt. United States should become self suffi- The Tariff of 1828 imposed extremely high cient....The Tariff of 1828 is unpopular be- duties on the raw materials that manufac- cause it reduces manufacturers' profits.

Senator from South Carolina The Facts from Americans, who can't afford to buy as The world production of cotton has grown much, has decreased. rapidly and its price has fallen from 314 a pound in 1818 to 8$ a pound in 1831. Mean- President Jackson has indicated his inten- while, cotton yields have fallen because of tions to enforce federal tax laws. soil exhaustion. South Carolinians import most of their In Your Opinion... goods from Europe or Northeastern states. The 1832 tariff level of 33 1/3 percent is un- But tariff levels doubled between 1816 and acceptable. Tariffs are important for a 1828, to about 50 percent of a good's value. strong U.S. economy, but the level is too The Tariff of 1832 reduced the average to 33 high....Wealth is being transferred from the 1/3 percent. South to the North....Your state has the right Southerners' cost of living has increased sig- to nullify a federal law and has passed an nificantly while their income from the sale Ordinance of Nullification. Some people are of cotton has fallen. Europeans aren't buy- even talking about secession from the ing as much cotton because their income Union. A devastating war might take place.

Senator from Ohio The Facts In Your Opinion... The federal government receives most of its Westerners need public policies that encour- revenue from tariffs and the sale of public age productivity and the growth of a strong lands in the West. union....More government revenue should To help the growth of the West, the federal come from tariffs, rather than taxes, so the government needs a lot of revenue for in- price of public land will be lower....The ternal improvements such as roads and United States should not be dependent on canals. Britain and Europe....Each section of the country should produce the goods for which Westerners have a strong, growing market it is best suited: cotton and rice in the South, for grains and livestock in the expanding grains and livestock in the West, and manu- country. facturing in the Northeast.

Taxes In U.S History 25 Lesson 2: Student Handout 5

Name Date

Taxes Influence Economic Behavior

Taxes on goods and services influence the economic behavior of individuals and businesses. These taxes may encourage or discourage certain behaviors. For example, tariffs discourage people from buying foreign goods. Exemptions and deductions from taxes encourage people to more frequently engage in activities or buy products that offer exemption. The following chart lists some possible tax changes in U.S. history and today. In each case, identify behaviors that may be encouraged or discouraged. The first case is provided as an example.

Change in Tax Policy Behavior DiscouragedBehavior Encouraged

1.Congress increases the tariff consumers buying consumers buying on textiles from 25 percent to imported textiles American textiles 33 percent.

2.Congress decreases the tariff on iron from 50 percent to 25 percent.

3.Congress implements a tax deduction for charitable contributions.

4.Congress implements a tax deduction for interest paid on home mortgages. .

5.Congress eliminates the tax deduction for interest paid on credit card charges.

6.Interest earned on U.S. saving bonds is exempt from state and local taxes.

26 Taxes in U.S. History 30 Lesson 2: Student Handout 6

Name Date

Form 1040A

Department of the Manny Internal NovenaeService Form 1040A U.S. Individual Income Tax Return 1990 OMR No. 1545.00115 Your social security no. Wt name Step 1 Your first name and initial Spouse's social security so. Label L initial Last name (See page Id.) eA If joint return. spouse's Arm nun and a Use IRS L Apt. no. label. Home Alines (number and Pawn i If you haveP.O. hoe.WMMP 14.1 For Privacy Act Otherwise. N please print A and Paperwork Oftype. R have(orrice address, sae page ICI Reduction Act A City. town or poet office. suite, and ZIP code. (If you / Notice, see page 3. (see page 15) Note: Checking "Yes' will Presidential Election CampaignFund Nonot change your tar or fund? Yes Do you want $1 to go to this Yes Noreduce your refund. If joint return, does your spousewant $1 to go to this fund? file as head of household.) 1 Single. (See page 16 to find out if you can Step 2 Married filing joint return (evenif only one had income) Check your 2 Enter spouse's social securitynumber above filing status 3 Married filing separate return. and spouse's full name here is your child (Check only one.) 16.) If the qualifying person Head of household (withqualifying person). (See page 4 this child's name here but not your dependent, enter died 19_ ). (See page 17.) Qualifying widow(er) withdependent child (year spouse 5 No, of boles claim you as a dependent on his orhertax checked on If your parent (or someone else) can Ss and 8b Yourself But be sure to check the box on linelab on page 2. Step 3 68 return, do not check box 6a. } No. of your Figure your 5. No. of mouths children on 6b Spouse 3. If age 2 or older. 4. Dependent'. exemptions 2. Check relationship to lived in your Eic who: C Dependents: if underdependent's social security home in 1990 (Seepage 17.) number you lived 1. Name (first, initial. and laat name) age 2 . . . . with you didn't live with you due to divorce or If more than 7 separation dependents, (see page21) see page 20. No. of other dependents listed on 8e

live with you but isclaimed as your dependent Add numbers d If your child didn't entered on under a pre-1985 agreement,check here lines above eTotal number of exemptionsclaimed. This should be shown in Box10 of your W-2 7 Wages, salaries, tips, etc. 7 Step 4 form(s). (Attach Form(s) W-2.) also complete Figure your 8e Taxable interest income(see page 23). (If over $400, 5it total Income and attach Schedule 1, PartI.) (DO NOT include on line 8a.)8b I b Tax-exempt interest. attach Schedule 1, Part II.) Attach Copy B of $400, also complete and your Forms W-2 9 Dividends. (If over and W-2P here. 10b Taxable amount 10a Total IRA (see page 24). 10b 10a I Attach check or distributions. money order on 1 lb Taxable amount 11e Total pensions (see page 25). lib rVP.2ool:7-21)7s and annuities. 1 la 12 compensation (insurance) fromForm(s) 1099-G. 12 Unemployment 13b Taxable amount 13a Social security (see page 28). 13b benefits. 13a 14 13b (far right column).This is your total income. 14 Add lines 7 throueh 15a 15a Your IRA deductionfrom applicable worksheet. Step 5 from applicable worksheet. b Spouse's IRA deduction 15b Figure your Note: Rules for IRAs begin on pace30. 15c 15b. These are your totaladjustments. adjusted e Add lines 15a and adjusted gross income. gross line 14. This is your 16 16 Subtract line 15c from"Earned income credit" on page38.) Income (If less than $20,264, see

BEST COPY AVAILABLE Taxes In U.History 27 3 Lesson 2 Student Handout 6

Name Date

Form 1040A (continued)

Page 2 1990 Form 1040A 17 17 Enter the amount fromline 16. Step 6 Blind I Enter number of El You were 65 or older 18a 18a Check Blind boxes checked if: ElSpouse was 65 or older dependent, b If your parent (or someoneelse) can claim you as a io 1800 check here filing separately and your spousefiles Form c If you are married page 34 and checkhere 18c Figure your 1040 and itemizes deductions, see deduction. See page 35 forthe chart (or worksheet) standard 19 Enter your standard deduction here. 19 deduction, that applies to you. Be sure toenter your standard than line 17, enter -0-.) 20 20 Subtract line 19 fromline 17. (If line 19 is more exemption 21 total number of exemptionsclaimed on line 6e. amount, and 21 Multiply $2.050 by the than line 20, enter -0-.) 22 Subtract line 21 fromline 20. (If line 21 is more 22 taxable income This is your taxable income. line 22. Check if from: 23 23Find the tax on the amount oni=1 Form 8615 (see page 36) Step 7 Fj Tax Table (pages 49-54) or dependent care expenses. Figure your 24a Credit for child and 24a tax, Complete and attach Schedule2 credits, bCredit for the elderly or thedisabled. and 3. 24b payments Complete and attach Schedule credits. 24c c Add lines 24a and24b. These are your total than line 23, enter -0 -.) 25 If you want IRS line 23. (If line 24c is more to figure your 25 Subtract line 24c from tax. see the 26 instructions for payments from Form W-2. line 22 on page 26Advance earned income credit 36. 27 27 Add lines 25 and 26.This is your total tax. tax withheld. (If any is 28a Total Federal income 28a from Form(s) 1099, checkhere Eji .) payments and amount b 1990 estimated tax 28b applied from 1989 return. c Earned incomecredit. See page 38 to find this credit. 28c out if you can take total payments. 28d d Add lines 28a. 28b.and 28c. These are your than line 27, subtract line 27from line 28d. Step 8 29 If line 28d is more 29 This is the amount youoverpaid. Figure your 30 refund 30 Amount of line 29 youwant refunded to you. or amount want applied to your you owe 31 Amount of line 29 you 31 1991 estimated tax. line 28d from line 27. Thisis the 32 If line 27 is morethan line 28d, subtract full amount payable to Attach check or amount you owe. Attachcheck or money order for money order on Write your name, address,social security to of Form(s) "Internal Revenue Service." 1040A" on it. 32 W-2, etc. on number, daytime phonenumber, and "1990 Form Page 1. 33 1 (see page 42). statements. and to the best of myknowledge 33 Estimated tarpenalty and accompanying schedules and all information of which the preparerhas that I have examined this return(other than the taxpayer i is baud on Under penalties of perjury. I declareand complete. Declaration of preparer Step 9 and belief, they are true. correct, any knowledge. Date Your occupation Sign your Your signature return Date Spouses occupation Keep a copy of Spouses signature ( ifjoint return.BOTH must sign) this return for Preparees social security no. your records. Date Check d Prepare?. self.em toyed Paid signature El. No. emperor's Firm's name (or ZI1 code use only yours if setfamployed) and address

28 Taxes ki U.S. History BEST .COPYAVAILABLE 32 Lesson 2: Transparency Master

Name Date

Sample Tax Table

It Form 1040A, And you are It Form 10404, And you aro Una 22, Is line 22, Is But BrIgteMarriedMarned Head maeo Head At of But Single Married less filing filing a At filing filing of a least house. less than foully sepa- least sapa house- rately hold than rately hold Your tax Is- Your tax Is 23,000 20,000 4.3383,454 3,004 23.000 23,0503.9193.454 20.000 20.0503.0793,0043,498 3.9333,4614.3523,461 3.0033.0113.5123,011 23,050 23,100 3,469 20,050 20,100 3.019 23,100 23.1503.9473,4694.366 20.100 20.1503,1073.0193.526 3.9613,4764,3803.476 3,1213.0263.5403.026 23.150 23.200 20.150 20.200 3.4844,3943.484 3,5543.034 23,200 23.2503.975 20.200 20.2503,1353,034 23,250 23.3003,9893,4914,4083.491 3.1493.0413.5683.041 3.4994.4223,499 20.250 20.300 3.5823,049 23.300 23.3504,003 20.300 20,3503,1633.049 23,350 23.4004.0173.5064.4363.506 20,350 20.4003.1773.0563,5963.056 23.400 23,4504,0313,5144,4503.514 3.1913.0843.6103.064 3.5214,4643,521 20,400 20,450 3,071 23.450 23,5004,045 20,450 20.5003,2053,0713.624 23.500 23,5504,0593.5294,4783.529 20.500 20.5503,2193.0793.6383.079 4.0733.5364,4923.536 3,2333.0863,6523.086 23,550 23,600 20.550 20,600 4,0873,5444,5063.544 3,094 23,600 23,650 20,600 20,6503,2473,0943.666 23.650 23,7004.1013.5514.5203.551 3,2613.1013.6803.101 4,1153.5594,534 3,559 20,650 20,700 3.109 23.700 23,750 20,700 20,7503,2753,1093.694 23.750 23,8004,1293.5664,548 3.566 20,750 20,8003,2893,1163,7083.116 23,800 23,8504,1433.5744,562 3,574 20,800 20,8503,3033,1243.7223.124 4,1573,5814.5763.581 3.3173,1313,7363.131 23,850 23.900 4.590 3,589 20.850 20.900 3.7503,139 23,900 23,9504,1711589 20,900 20,9503.3313,139 23,950 24.0004,1853,5964,6043,596 20,950 21,0003,3453,1463.7643,146 24,000 21,000 3.604 3,154 24,000 24,0504.1993,6044,618 21,000 21,0503,3593,1543.778 4,2133,6114.6323,611 3,3733,1613,7923,161 24,050 24.100 4,646 3,619 21,050 21.100 3,169 24.100 24,1504,2273,619 21.100 21,1503.3873,1693,806 4,2413.6264,660 3,626 21,150 21,2003,4013.1763,8203,176 24,150 24,200 4,2553.6344,674 3.634 3.1843.8343,184 24,200 24,250 21,200 21,2503,415 24,250 24,3004,2693,641 3.641 21.250 21.3003,4293,1913.8483,191 4,2833,6494,7023.649 3,4433,1993.8623.199 24,300 24,350 3.656 21,300 21,350 3.206 24,350 24.4004,2973,656 21,350 21,4003.4573,2063,876 4,730 3,664 3,214 24,400 24.4504,3113,664 21,400 21,4503.4713,2143,890 24,450 24,5004,3253,6714,7443,671 3,4853.2213,9043,221 3.6794,758 3,679 21.450 21,500 3,9183,229 24,500 24.5504,339 21.500 21,5503,4993,229 24,550 24,6004,3533,6864,772 3,686 21.550 21.6003,5133.2363.9323,236 24,600 24,6504,3673,6944,7863,694 21.600 21.6503,5273,2443.9463,244 3.7014,8003,701 3.9603,251 24,650 24,7004,381 3,709 21,650 21,7003,5413,251 24,700 24.7504.3953.7094,814 21.700 21,7503,5553,2593,9743,259 4.4093.7164.8283,716 3.5693.2663.9883,266 24,750 24,800 21,750 21.800 3,7244.842 3,724 4,0023,274 24,800 24,8504,423 21,800 21.8803.5833.274 24,850 24.9004.4373,7314,856 3,731 3,5973,2814,0163,281 3.7394.870 3,739 21,850 21.900 4,0303,289 24.900 24,9504,451 21,900 21,9503,6113,289 24,950 28,0004,4653,7464,884 3,746 21,950 22.0003,6253.2964,0443.296 22,000 25,000 25.000 25.0504,4793,7544,898 3,754 22,000 22,0503,5393,3044.0583.304 4,4933.7614,912 3.761 3,6533,3114.0723,311 25.050 25.100 4,926 3.769 22.050 22.100 3,319 25,100 25.1504.5073.769 22,100 22.1503,6673,3194,086 4.5213,7764.940 3,776 3,3264,1003,326 25.150 25.200 22,150 22.2003,681 4,9543.784 4,1143,334 25,200 25.2504.5353,784 22,200 22,2503,6953,334 25,250 25.3004.5493,7914, 3.791 22,250 22,3003,7093,3414,1283,341 4.5633.7994,9968823,799 3,7233,3494,1423.349 25.300 25.350 4.9963,806 22,300 22.350 4,1563,356 25.350 25,4004,5773.806 22.350 22.4003,7373,356 5,010 3.814 4,1703,364 25,400 25.4504,591 22,400 22,4503.7513,364 4,605 33..8821145,0243.821 3,7653,3714.1843.371 25.450 25,500 5,038 3,829 22.450 22.500 3.379 25,500 25,5504.6193.829 22.500 22.5503.7793,3794,198 4,6333,8365,0523.836 3,7933.3864.2123,386 25,550 25.600 22,550 22.600 4,6473.8445.0663,844 3,8073,3944,2263,394 25.600 25.650 5,080 3,851 22.600 22.650 3,401 25,650 25.7004.6613.851 22.650 22,7003.8213.4014,240 4,6753.8595.094 3,859 3.4094,2543,409 25.700 25,750 22.700 22.7503.835 25.750 25.8004,6893.8665,108 3,866 22.750 22.8003,8493,4164,2683.416 4.7033.8745,1223.874 3,4244.2823,424 25,800 25,850 3.881 22,800 22.8503,863 25.850 25.9004.7173,8815,136 22.850 22.9003,8773.4314,2963.431 4.7313.8895.1503.889 3,8913,4394.3103.439 25.900 25.950 3.896 22,900 22.950 3,446 25.950 26.0004.7453,8965,164 22.950 23.0003,9053,4464.324

Adapted from 1990 IRS Tax Table BEST COPY AVAILABLE Taxes In U.S, History29 33 Lesson 3: Transparency Master

Timeline of Events: 1892-1913

1892 Income tax is a key issue in the presidential campaign

1894 National personal income tax law initiated

1895 U.S. Supreme Court declares the income tax law unconstitutional

1909 Congress proposes constitutional amendment giving it power to enact legislation requiring payment of income taxes

1913 Sixteenth Amendment to the Constitution ratified, clearing the way for Congress to pass federal income tax laws

1913 Federal income tax law initiated; is based on ability to pay

30 Taxes in U.S. History Lesson 3: Student Handout 7 Newspaper Editorials

Populist Kansas Newspaper People in the West believe that they are being feel they are not benefiting from the growing exploited by the East. In western states, in- economy. Westerners support government comes are derived primarily from farming, regulation of shippers and big business. In logging, mining, and ranching. Farmers and some cases, people want the government to others sell their basic products to the East own and run transportation and communi- and buy its finished goods. Prices for agri- cation businesses in the interests of the peo- cultural products have been decreasing. The ple. In the Panic of 1893, many farmers lost railroads for shipping the products are their farms. Westerners want the govern- owned or controlled by Easterners who ment to provide more goods and services to charge very high shipping charges. Very few them and support a graduated income tax as people in the West earn high incomes. People a fair way to raise revenue.

Progressive Cleveland Newspaper As a Progressive newspaper, you are inter- one, and safer working conditions. The Pro- ested in economic and political reforms. You gressives in your area do not like how support many of the reforms that the Popu- unevenly incomes are distributed in the city. lists proposed, such as direct election of sen- A few people are very wealthy and many ators, the initiative, and the referendum, but people are very poor. You favor a graduated you also support reform in the urban and income tax to provide more government ser- industrial areas. The urban Progressives are vices and enforcement of regulations to concerned about corruption in city govern- make poor people's lives better. You think ment. They are also concerned about the use people with higher incomes are more able to of child labor in factories, improved housing pay the taxes and help improve society. for poor people, better health care for every-

Republican New York Newspaper As a conservative Republican newspaper, in New York. Northeastern Republicans be- you are widely read by the Northeastern in- lieve most of the government spending will dustrialists. Your readers are concerned that go to the West, even though Northeasterners the proposed income tax is a movement to- might pay most of the taxes. Your readers be- ward socialism. The idea that people will be lieve that whatever is good for business is able to pay more taxes because they earn good for the country. If business owners are more money seems undemocratic to your required to pay higher taxes, then they will readers, who favor taxes where everyone have less money to invest and the businesses pays the same ratesuch as the tariffs and will suffer along with the people who work excise taxes. An income tax will tax salaries for the businesses. Your readers oppose the and wages, interest, dividends, and rent. 16th Amendment. which are all important sources of income

35 Taxes in U.S. History 31 Lesson 3: Student Handout 8

Name Date

What Is a Fair Tax?

It's difficult for people to agree on what is a fair tax. Ability to pay is one criterion of fairness; it involves asking basic questions such as the following. Should people who earn the same income be required to pay the same taxes? Should people who earn higher incomes be required to pay higher taxes? In our current income tax system, taxes are progressive; that is, people with higher incomes pay a larger portion (or percentage) of their income on taxes than people with lower incomes. In the following table, you are given four cases in each of which you compare two families, their circumstances, incomes, type of tax paid, and amount of taxes paid. For each family, you should L calculate the percentage of income paid on taxes 2.determine if the tax is based on ability to pay 3.decide if you think the tax is fair

Portion ofAbility to Fair? Family Situation IncomeType of TaxTax PaidIncome (%)Pay? (Y/N) (YIN) A. Two parents, $42,000Income $4,624 one child B. Two parents, $42,000Income $3,724 four children C. Two parents, $20,000Social $1,530 two children Security D. Two parents, $100,000Social $3,924 two children Security E. Two adults (no $50,000Income $9,500 children); rent house for $650/month F. Two adults (no $50,000Income $7,700 children); ., buying a house for $650/month

G. Two parents, $30,000Income $2,520 , two children, no deductions H. Two parents, $100,000Income $20,878 two children, no deductions

32 Taxes in U.S. History 36 Lesson 3: Student Handout 9

Name Date Basic Income Tax Structure

Fill in the following boxes while the class discusses the main parts of the income tax structure.

2. I I

equals*

3. I

4. I I or5. I I

Ilkequals *

a 1 1

minus+ *

Sample Tax Rate ScheduleMarried Filing Joint Returns (Adapted from 1990 IRS Tax Rate Schedule Y-1) If taxable income is: Your tax payment is: Over But not over of the amount over $0 $32,450 15% $0 32,450 78,400 $4,867.50 + 28% 32,450 78,400 162,770 17,733.50 + 33% 78,400

Taxes In U.S. History33 37 V- ,

Resources

For tax information, contact the Internal Revenue Service toll-free at 1-800-829-1040.

To order more tax forms for classroom use, call the Internal Revenue Service toll-free Forms Only number at 1-800-829-3676.

For more information about the materials, workshops, and other aspects of Taxes in U.S. History, contact a local or regional office of the Joint Council for Economic Education. Information on offices in your area may be obtained from the national headquarters of JCEE. Call (212) 685-5499.

3& , .1

SCELTA5113 bit U.O. MN=vywas developed under the direction of the Joint Council on Economic Education and the Agency for Instruc- tional Technology with the assistance of state and economic education agencies of the 50 states, the District of Columbia, Puerto Rico, and the Department of Defense Dependents Schools. Funding for gal,Zeal3 gi311 MO. Inia4J)V7 was provided by the Internal Revenue Service.

Joint Council on Economic Education 432 Park Avenue South, New York, NY 10016 The Joint Council on Economic Education is an independent, nonprofit, nonpartisan, educational organization incorporated in 1949 to encourage, improve, coordinate, and service the economic education movement. Its principal medium for expanding and improving economic education is a net- work of Affiliated Councils functioning at the state level and Centers for Economic Education on college and university campuses. The American Economic Association and American Association of Colleges for Teacher Education are formally affiliated with the Joint Council, as are other national professional groups concerned with economic education.

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Marna° Revenue Service T:T:VE 1111 Constitution Ave. NW Washington, DC 20224 The mission of the Internal Revenue Service Volunteer and Education Pro- grams is to provide and support a well-trained and dedicated staff of IRS personnel and volunteers to assist, educate, and inform the public world- wide of its U.S. tax rights and responsibilities.

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