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Ch. 9 Taxes

Ch. 9 Taxes






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    Ch. 9 Taxes Ch. 9 Taxes Presentation Transcript

    • Taxes
      • What is the decision being made in this cartoon?
      • Are these two things controllable?
    • Economic Impact of Taxes
      • Taxes and other forms of govt. revenue influence the economy by affecting
        • Resource allocation
        • Consumer behavior
        • National productivity and growth
    • Resource Allocation
      • Taxes are directly related with the movement in the market.
      • They are levied on goods/services and production.
      • This directly affects supply, demand, and equilibrium price.
    • Behavior adjustment
      • Taxes are used to either help out or punish consumers
        • Homeowners get tax breaks on mortgages
        • Sin taxes are levied on alcohol, tobacco, etc.
    • Productivity and Incidence of Tax
      • Taxes affect productivity because of the taxation of income.
      • They change the incentives to save, invest, and work.
      • The final burden of the tax can be measured by supply and demand.
      • It is much easier for the producer to shift the burden of the tax to the consumer.
    • The Criteria for Effective Taxes
      • Equity- Fairness is so important for effective taxes. The goal is to try and avoid loopholes so everyone gets to pay a fair share.
      • Simplicity- Laws should be written so both the payer and tax collector can understand them.
        • Individual income tax-complex
        • Sales tax- simple
      • Efficiency-should be relatively easy to administer and reasonably successful at generating revenue.
        • Individual income tax—very efficient
        • Tall taxes are not so efficient.
    • Two Principles of Taxation
      • Benefit Principle—Those who benefit from govt. goods should pay in proportion to the amount of benefits they receive.
      • Ability to Pay—people should be taxed according to their ability to pay, regardless of the benefits that they receive.
    • Types of Taxes
      • Proportional tax- imposes same percentage rate of taxation on everyone.
      • Progressive tax- imposes a higher tax on people with higher incomes.
      • Regressive tax- imposes higher rate on low incomes.
    • Individual Income Taxes (Fed.System)
      • The 16 th amendment allows Congress to levy taxes.
      • Govt. collected nearly 45% of its income from individual income tax.
      • It is paid through payroll deduction over time.
      • It is a progressive tax and has a provision for indexing. Indexing keeps workers from paying more in taxes due to inflation.
    • FICA
      • Employers and employees share the burden of paying these taxes.
      • You see a deduction in your check for both Medicare and Social Security.
      • Social Security is a 6.2% flat tax rate.
      • Medicare is taxed at a 1.45% rate.
    • Other Federal Taxes
      • Excise Tax is levied on things like gas and liquor.
      • Estate taxes are levied when property is transferred form one individual to another.
      • Gift taxes are made on donations, the giver is the person responsible for this tax.
    • Corporate Tax and Duty
      • Corporations have to pay taxes on income and this accounts for the third largest category of taxes.
      • Customs duties are levied on goods brought into the United States.
      • About 1% of federal revenue is collected through miscellaneous fees.
      • Who is this man working for?
      • What is this cartoon saying about the government?
      • How is irony incorporated in this cartoon?
    • State Govt. Revenue sources
      • Intergovernmental revenue is the largest form of state revenue. This is funds collected by one level of govt. and redistributed to another level.
      • Sales taxes are the second largest form of state revenue.
      • Other forms of revenue comes various state supported sources such as university tuitions, interest earnings, etc.
    • Local Government revenue
      • Local govts. receive the largest part of their revenue from intergovernmental revenues. Intended for education/welfare.
      • Property taxes raise a significant amount of revenue for local govt.
      • Public utilities and state owned liquor stores raise the third largest form of revenue for local govt.
    • Tax Reform
      • Tax reform (1981)—Reagan proposed the Economic Recovery Tax Act to reduce taxes for many business owners.
      • Businesses received tax relief in the form of accelerated depreciation which allowed a reduction in federal income tax payments.
      • They also received tax credits on investment.
    • Tax Reform (1986, 1993)
      • In 1983, more than 3,000 millionares paid no income tax.
      • Congress passed a tax reform that reduced brackets to two.
      • Added surcharge to tax higher income more.
      • Govt. spending was high.
      • Omnibus Budget Reconciliation Act was passed so the govt. could balance the budget.
      • Added two more marginal brackets.
    • Tax Reform in 1997 and 2001
      • Taxpayer Relief Act was passed to help out many individuals.
      • Taxes were cut across the board due to a high surplus in revenue.
      • Added a 10% bracket and lower the percentile for the top two brackets.
      • High child tax credits were added as well.
    • The Value Added Tax
      • People want to shift the tax from income to consumption.
      • (VAT) is placed on the value added to each stage of production.
      • Production of g/s would be taxed as the product is passed from producer to consumer.
    • Advantages vs. Disadvantages
      • Hard to avoid because the tax collector levies on total amount of sales less the cost of inputs.
      • Is widely spread
      • Easy to collect
      • Would affect people’s behavior.
      • Is invisible to consumer.
      • Would compete with state sales taxes.
    • Advantages vs. Disadvantages of Flat Tax
      • Simplicity offered to taxpayer.
      • Closes most loopholes
      • Reduces the need for tax accountants.
      • Removes many of the behavior incentives already built into tax code.
      • No one knows exactly what rate is needed to replace the revenues already collected from the current system.