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Taxes & Fees

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A special lecture on Taxes, Fees, and Excises

See with the audio at https://youtu.be/hJlm9C6iNgE

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Taxes & Fees

  1. 1. A special lecture by Robert J. Dickey, MPA, JD 1
  2. 2. “The Shakedown” 2
  3. 3. •Aims of Taxes & Fees •Taxes vs. Fees (and Excises) •Direct vs. Indirect Collections •Progressive, Regressive, Proportional, and Digressive Systems •Marginal vs. Effective Rates •(Mis)Interpretations and (Mis)Understandings •Quiz Looking Ahead 3
  4. 4. •No two jurisdictions across the world have the same tax rules •Even in the USA, 50 states, plus Federal Law, all are different Note – Diverse Laws! 4
  5. 5. Aims of Taxes & Fees •What are the objectives of any tax or fee? What is the objective of this particular collection? 5
  6. 6. Aims of Taxes & Fees 1. Generate Revenue a) General purpose revenues b) Specific purpose revenues 2. Encourage/Discourage Specific Behavior 3. Promote Equity 6
  7. 7. 1. Generate Revenue a) General purpose revenues b) Specific purpose revenues Military, Education, Roads, Public Health, Pensions, Debt payments. … 7
  8. 8. 2. Discourage Specific Behavior http://www.freemalaysiatoday.com/category/leisure/2015/05/24/smokers-more-likely-to-t 8
  9. 9. 3. Promote Equity What is the difference between •“equality” and •“equity” ? ? ? 9
  10. 10. Equality vs. Equity Image: Interaction Institute for Social Change | Artist: Angus Maguire. http://interactioninstitute.org/ and http://madewithangus.com/ 10
  11. 11. How much Equity? •Gini Co-efficient a major concern? •Envy of the “too rich”? •Concern about the poor? •Incentives to work hard •Socio-economic “Safety-net” •Socialist perspectives 11
  12. 12. Taxes vs. Fees (and Excises) •Taxes are paid for government services that should help everyone We all benefit, directly or indirectly oSchools, Safety, Health… •Fees are paid for government services that directly serve that particular person The fee (amount) should be directly tied to the cost of maintaining the service oSwimming pool entrance, Parking garage 12
  13. 13. Excises •Excises are a special type of tax, something closer to a “fee” •Not all countries agree on the definition •Often defined through a list created by legislation(s) •Fixed rate by quantity, not by price •Usually included in the basic price at purchase 13
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  15. 15. Excises •in the USA … an indirect tax on listed items by federal, state and local governments not uniform throughout the United States collected from the producer or retailer not paid directly by the consumer  “hidden" in the price  maybe explains appeal to many politicians? But sometimes a tax is called “an excise tax” 15
  16. 16. Sample Excises •In the USA • Tobacco • Alcohol • Gasoline • Guns & ammunition • Luxury automobiles • Minerals/Oils (mining) • Gambling (where it is lawful) • Illegal drugs (?!?!?!?) •In the UK (historic) • Stamp Tax (printed materials) • Window Tax (the number of windows as a visible sign of wealth, not easily hidden) – is this really an excise? 16
  17. 17. More details on tax types •Ad valorum tax - % of product value •Specific tax - per unit, e.g., petroleum, wine •Sales tax – applies only at end of process (final sale) •GST – sales tax that applies to both goods and services •VAT – applies at every level of process (taxed each time value is added) 17
  18. 18. Direct vs. Indirect Collections •Direct – payment direct from people (tax- payer) to government •Indirect – payment to government made through an intermediary 18
  19. 19. Direct vs. Indirect Collections Direct to Government Indirect via Intermediary 19
  20. 20. (Dis)Advantages of Indirect Collections Advantages •Poor exempted from paying direct taxes •Convenient to taxpayer & the state •Can be spread over a wide range of products/services •Easy to collect when goods bought & sold •Elastic in yield •Equitable •Curb consumption of harmful commodities Disadvantages •Not equitable •Discourages industry if raw goods are taxed •Uneconomical •Does not develop civic-mindedness •Difficulty in tracking 20
  21. 21. Examples of Direct Taxes •Income tax •Corporation tax •Property tax •Motor vehicle registration (re-registration) •Inheritance tax •Gift tax •Wealth tax •Municipal residency tax 21
  22. 22. Examples of Indirect Taxes •Sales Tax •Value Added Tax (VAT) •Goods & Services Tax (GST) •Excise (tax) •Customs duty •Service tax •Securities Exchange Transaction Tax (STT) 22
  23. 23. photo credit: Wai Linn Kyaw/Myanmar Business Today http://www.mmbiztoday.com/articles/ird-revenue-stamp-crackdown-imminent 23
  24. 24. Progressive, Regressive, Proportional and Digressive Systems •Progressive taxes are based on a progressive or increasing tax rate schedule the more you earn, the higher the tax rate •Regressive taxes have a greater impact on low-income individuals or entities than high-income earners Low income earners feel like they pay more 24
  25. 25. Progressive, Regressive, Proportional and Digressive Systems •Proportional taxes (aka "flat tax") impacts low-, middle- and high-income earners relatively equally •Digressive tax is just a “flatter” version of a progressive tax – it stops “progressing” earlier (lower) and might start at a higher rate than a “pure” progressive system 25
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  30. 30. Progressive, Regressive, Proportional Taxes in Application •Progressive Tax (or Digressive?) • Income Tax •Regressive Tax • “Sin Taxes” (cigarettes, alcohol – excises) •Proportional Tax • Sales tax (in application, but reality?) 30
  31. 31. Actual Effects •Governments generally describe tax systems according to marginal tax rates •Citizens generally consider taxes to be “fair” or unfair based on effect 31
  32. 32. Marginal vs. Effective Rates •Marginal Rates indicate tax on additional amounts •Banded Rates describe tax for total amount within a range •Effective Rates are the “actual” amount after discounts (deductions, waivers, etc.) compared to actual income (or value) 32
  33. 33. Examples •The marginal tax rate is the percentage of tax applied to your income for each tax bracket (band) you qualify for. •The effective tax rate is the final calculated amount compared to your total income (or value) •Let’s look at USA Federal Income Tax 2016 and a “Mr. John Smith.” 33
  34. 34. Marginal Tax Example Marginal Tax Rates 2016 US Federal Income Tax 10% Bracket: $0 to $9,275 15% Bracket: $9,275 - $37,650 25% Bracket: $37,650 - $91,150 28% Bracket: $91,150 - $190,150 33% Bracket: $190,150 - $413,350 35% Bracket: $413,350 - $415,050 39.6% Bracket: $415,050+ (the marginal tax rates are Progressive) Sample Case – John Smith $120,000 in income ($9,275 - $0) x 10% = $927.50 ($37,650 - $9,275) x 15% = $4,256.25 ($91,150 - $37,650) x 25% = $13,375 ($120,000 - $91,150) x 28% = $8,078 Not applicable Not applicable Not applicable TOTAL: $26,636.75 34
  35. 35. Effective Tax Example Joe Smith’s initial compiled tax rate is $26,636.75 / $120,000 = 22.2% But … •Deductions Single or Married? Children? Owns a home with a mortgage? Health expenses? •Other legal loopholes 35
  36. 36. Marginal Tax Example #2 Sample Case 2 – James Jones $90,000 in income ($9,275 - $0) x 10% = $927.50 ($37,650 - $9,275) x 15% = $4,256.25 ($90,000 - $37,650) x 25% = $13,087.50 Not applicable Not applicable Not applicable Not applicable TOTAL: $18,541.25 Sample Case 1 – John Smith $120,000 in income ($9,275 - $0) x 10% = $927.50 ($37,650 - $9,275) x 15% = $4,256.25 ($91,150 - $37,650) x 25% = $13,375 ($120,000 - $91,150) x 28% = $8,078 Not applicable Not applicable Not applicable TOTAL: $26,636.75 36
  37. 37. Effective Tax Example 2 Joe Smith’s initial compiled tax rate is $35,036.75 / $120,000 = 22.2% And … John Jones’ initial compiled tax rate is $18,541.25 / $90,000 = 20.6% But Remember, deductions reduce your taxable income the rich have more deductions 37
  38. 38. Mis(Interpretations & (Mis)Understandings 1. There are many kinds of taxes that individuals pay. • typical worker has 6 or 7 “withholdings” in a single paycheck 1. Tax structure is not based on lifestyle • Example: Cigarettes 1. Tax Loopholes (deductions & exemptions) • Example: Buffett & Trump 38
  39. 39. Cigarettes Tax Example Smoker #2 – Bill Green $4,000/month income 1 week : $10 4 weeks : $40 1% of monthly income Smoker #1 – Bob White $1,000/month income 1 week: $10 4 weeks : $40 4% of monthly income 39 •Let’s say a pack of cigarettes cost $5 •Our model smokers buy 2 packs per week
  40. 40. “The Buffett Rule” •Warren Buffett noted that his secretary paid more taxes than he did. •Donald Trump took a $916 million tax write- off “carry-forward,” and therefore “paid no taxes” for a number of years. •President Obama proposed “The Buffett Rule”-- those who earn more than $1million have a mandatory 30% minimum tax. 40
  41. 41. Sliding Fees Scales •Is it fair to charge everyone the same fee, regardless of their income or assets? •Should we consider the size of the family when we consider the fee? •What about “other assets” • Money in the bank • Home ownership • Automobile • Other 41
  42. 42. Sliding Fees Scales 42
  43. 43. Sliding Fees Scales 43
  44. 44. Finally 44

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