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Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
Chapter 9
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Chapter 9

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  • 1. Chapter 9:Sources of Government Revenue<br />
  • 2. 9-1: The Economics of Taxation<br />Economic Impact of Taxes<br />Resource allocation – when taxes are raised on a product, consumers buy less, manufacturers produce less, and resources will have to go to other industries to be employed<br />Behavior adjustment - taxes can be used to encourage or discourage certain types of activities<br />By changing incentives to save, invest and work, taxes affect productivity and growth <br />
  • 3. Criteria for Effective Taxes<br />Equity - fair<br />Simplicity – easy to understand<br />Efficiency – benefits outweigh costs<br />Two Principles of Taxation:<br />Benefit Principle – belief that taxes should be paid based on benefits received, regardless of income<br />Ability to Pay Principle – belief that taxes should be paid according to the level of income, regardless of benefits received<br />
  • 4. Three Types of Taxes<br />1. Proportional Tax – as income goes up, the percentage of income paid in taxes stays the same<br />2, Progressive Tax – as income goes up, the percentage of income paid in taxes goes up<br />3. Regressive Tax - as income goes up, the percentage of income paid in taxes goes down<br />
  • 5. 9-2: Federal, State, and Local Revenue Systems<br />Federal Government Revenue Sources (in order of size)<br /> 1. Individual Income Taxes <br /> – collected with a payroll withholding system that automatically deducts income taxes from paychecks<br /> 2. FICA Taxes - Federal Insurance Contributions Act<br /> - tax levied on employers and employees to support Social Security and Medicare<br /> - also automatically deducted from paycheck<br /> 3. Borrowing<br /> 4. Corporate Income Taxes<br /> 5. Excise Taxes – tax on manufacture or sell of selected items such as gasoline and liquor<br />
  • 6. 6. Estate and Gift Taxes<br /> 7. Customs Duties<br /> 8. Miscellaneous Fees <br />
  • 7.
  • 8. State Government Revenue Sources (in order of size)<br /> 1. Intergovernmental Revenues<br /> – funds collected by one level of government that is distributed to another level of government for expenditures<br /> 2. Sales Taxes <br /> - general tax levied on consumer goods<br /> - 5 states do not have a general sales tax<br /> 3. Individual Income Taxes<br /> - only 7 states do not rely on individual income taxes for revenue<br /> - varies widely from state to state<br /> 4. Other Revenues<br /> - interest earnings<br /> - tuition and fees<br /> - corporate income taxes<br />
  • 9. Local Government Revenue Sources (in order of size)<br /> 1. Intergovernmental Revenues<br /> 2. Property Taxes <br /> - tax on tangible and intangible possessions such as real estate, buildings, furniture, stocks, bonds and bank accounts<br /> 3. Utility Revenues<br /> - public utility companies that supply water, electricity, sewer, and sometimes telecommunications are often owned by local governments<br /> 4. Sales Taxes<br /> 5. Other Revenue Sources<br /> - interest earnings<br /> - fees<br /> - borrowing<br />
  • 10.
  • 11.
  • 12. 9-3: Current Tax Issues and Reforms<br />Current Tax Code is incredibly complex<br />Tax Reform: 1981<br />Economic Recovery Tax Act included large tax deductions for individuals and businesses, accelerated depreciation, and investment tax credits<br />Tax Reform: 1986<br />Tax Reform: 1993<br />Tax Reform: 1997<br />Tax Reform: 2001<br />Tax Reform: 2003<br />Permanent tax cuts by 2011?<br />
  • 13. Alternative Tax Approaches<br />Flat Tax – a proportional tax on individual income<br />Simple<br />Closes “loopholes”<br />Save $$ and time preparing tax returns<br />Removes incentives in current tax code<br />Value-Added Tax – Tax consumption, not income<br />Equivalent to a national sales tax<br />Tax on the value added at every stage of the production process<br />

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