Internal Revenue Service

Examples of Internal Revenue Service in the following topics:

• How Taxes Work in the United States

  • Tax laws are passed by Congress and enforced by the Internal Revenue Service (IRS) at the federal level.
  • Congress then takes the tax revenue and apportions it through its power to create and manage the federal budget.
  • That duty is charged to the Internal Revenue Service (IRS), a part of the Department of the Treasury.

• Financing the US Government

  • The importance of taxation arises from the fact that it is by far the most significant source of government revenue and is therefore the primary means of financing government expenditures .
  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • It is important to note that when the government spends more than the tax revenue it collects, the government is operating at a deficit and will have to borrow funds to finance operations until taxes can be increased to return the government spending to a balanced budget.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • In the United States the Internal Revenue Service is the regulatory authority empowered by Congress to collect taxes.

• What Taxes Do

  • Taxes are the primary source of revenue for most governments.
  • It is important to note that Congress has delegated to the Internal Revenue Service (IRS) the responsibility of administering the tax laws, known as the Internal Revenue Code (the Code).
  • Taxes allow the government to perform and provide services that would not evolve naturally through a free market mechanism, for example, public parks.
  • Though a general revenue source, sales taxes are also used to modify behavior.
  • Tax revenue is used by the government to support services and activities available to all residents.

• Social Insurance

  • Tax deposits are collected by the Internal Revenue Service (IRS) and are formally entrusted to the Social Security Trust Funds.
  • Medicare is funded through revenue from FICA and SECA payroll taxes, as well as through premiums paid by Medicare enrollees and general fund revenue from the federal government.
  • FUTA covers the costs of administering the Unemployment Insurance and Job Service programs in all states.

• Pensions and Unemployment Insurance

  • The federal government's tax collection agency, the Internal Revenue Service, sets most rules governing pension plans, and a Labor Department agency regulates plans to prevent abuses.
  • Many employers -- especially small employers -- stopped offering traditional "defined benefit" plans, which provide guaranteed monthly payments to retirees based on years of service and salary.
  • The federal government administers several types of pension plans for its employees, including members of the military and civil service as well as disabled war veterans.
  • The federal government may also permit a further extension of the benefits payment period when unemployment climbs during a recession, paying for the extension out of general federal revenues or levying a special tax on employers.

• Relationship Between Output and Revenue

  • In economics, output is defined as the quantity of goods or services produced in a certain period of time by a firm, industry, or country.
  • Revenue, also known as turnover, is the income that a company receives from normal business activities, usually from the sale of goods and services.
  • Businesses analyze revenue in their financial statements.
  • Revenue is an important financial indiator, though it is important to note that companies are profit maximizers, not revenue maximizers.
  • It generates revenue by selling its output.

• Fiscal Policy -- Budget and Taxes

  • In 1930, the federal government accounted for just 3.3 percent of the nation's gross domestic product, or total output of goods and services excluding imports and exports.
  • Next, they divide that overall figure into separate categories -- for national defense, health and human services, and transportation, for instance.
  • (Local governments, in contrast, generally collect most of their tax revenues from property taxes.
  • The 1862 tax law also established the Office of the Commissioner of Internal Revenue to collect taxes and enforce tax laws either by seizing the property and income of non-payers or through prosecution.
  • Still, except during World War I, the income tax system remained a relatively minor source of federal revenue until the 1930s.

• The Supply Curve in Perfect Competition

  • The total revenue-total cost perspective and the marginal revenue-marginal cost perspective are used to find profit maximizing quantities.
  • Profit maximization is the short run or long run process that a firm uses to determine the price and output level that returns the greatest profit when producing a good or service.
  • There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenue-total cost perspective and the marginal revenue-marginal cost perspective.
  • The total revenue-total cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC).
  • The marginal revenue-marginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC).

• Shut Down Case

  • A firm will implement a production shutdown if the revenue from the sale of goods produced cannot cover the variable costs of production.
  • A firm will choose to implement a production shutdown when the revenue received from the sale of the goods or services produced cannot cover the variable costs of production.
  • When determining whether to shutdown a firm has to compare the total revenue to the total variable costs.
  • If the revenue the firm is making is greater than the variable cost (R>VC) then the firm is covering it's variable costs and there is additional revenue to partially or entirely cover the fixed costs.
  • A firm that exits an industry does not earn any revenue, but is also does not incur fixed or variable costs.

• Analysis of Price Discrimination

  • Price discrimination exists within a market when the sales of identical goods or services are sold at different prices by the same provider.
  • This allows the seller to obtain the highest revenue possible.
  • Second degree price discrimination: the price of a good or service varies according to the quantity demanded.
  • By using price discrimination, the seller makes more revenue, even off of the price sensitive consumers.
  • These graphs shows the difference in sales revenue with and without price discrimination.