This document discusses different types of taxes including income taxes, sales taxes, and property taxes. It covers key concepts around taxes such as average tax rates, marginal tax rates, lump-sum taxes, and the benefits and ability-to-pay principles of taxation. Specific tax rates for personal and corporate income taxes in the US are presented. The document also discusses the concept of double taxation and incentives related to tax rates.

2. Macroeconomics
Lecture 6
Taxes

3. Questions?

4. Exam 1
Review

5. Economics
The study of how
humans create value for
one another

6. Government
Sell Stuff
Taxes
Borrow
Monetary Policy

7. Taxes
Income Taxes
Sales Taxes
Property Taxes
Excise Taxes
Estate Taxes
Fuel Taxes
Hotel Taxes
Sin Taxes

8. Key Terms
average tax rate
marginal tax rate
lump-sum tax
benefits principle
ability-to-pay principle
proportional tax
regressive tax
progressive tax

9. Taxes
Federal - Income
States - Sales Tax
Counties - Property Taxes

10. Lump-Sum Tax
Pay a fixed amount
regardless of income

11. Two Objectives
Efficient and Equitable
Low Cost and Fair

12. Efficient
Low deadweight loss and
low administrative burden
What does it cost to
collect a dollar in tax?

13. 0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Demand
Supply
with no tax
Loss of 160 in
surplus
120 in taxes
40 to deadweight
loss
25 percent loss
to deadweight
Buyer
Surplus
Seller
Surplus
Tax Analysis
Supply
with 40 tax
Tax on Seller with shift Supply curve up by the amount of the tax
Taxes Tax of 40
40
40
40

14. Incentives
Taxes change behavior

15. Types
Income - Earn
Sales - Spend

16. Are Taxes Fair?
Benefits
Ability to Pay

17. Benefits
You should pay for
what you receive

18. Ability
If you are able, you
should pay more

19. Tradeoff
Fair
or
Efficient

20. Income Taxes
Proportional
Progressive
Regressive

21. Proportional
Same rate
regardless of income
Tithing
Flat Tax

22. Progressive
Rate increases as income
increases
The more you make the
higher your rate

23. Regressive
Rate decreases as income
increases
The more you make the
lower your rate

24. Taxes
Income
Proportional
Regressive
Progressive
Lump Sum

25. Taxes
Income
Proportional
Regressive
Progressive
Lump Sum

26. 0%
10%
20%
30%
40%
50%
$0 to $20 $20 to $50 $50 to $100 $100 +
Marginal
Tax
Rate
Income

27. How much tax?
Income of $150,000
Range Rate Income Tax Total
$0 - $20 10% $20,000 $2,000 $2,000
$20 - $50 25% $30,000 $7,500 $9,500
$50 - $100 35% $50,000 $17,500 $27,000
$100 + 50% $50,000 $25,000 $52,000
Summary 35% $150,000 $52,000

28. Personal
Range Rate
$0 - $9,275 10%
$9,276 - $37,650 15%
$37,651 - $91,150 25%
$91,151 - $413,350 33%
$413,351 - $415,050 35%
$415,051 + 39.6%

29. Corporate
Range Rate
$0 - $50,000 10%
$50,001 - $75,000 25%
$75,001 - $100,000 34%
$100,001 - $335,000 39%
$335,001 - $10,000,000 34%
$10,000,001 - $15,000,000 35%
$15,000,001 - $18,333,333 38%
$18,333,334 + 35%

30. Double Taxation
Start Level Tax Rate Tax End
$100 Corporate Tax 35% $35 $65
$65 Personal Tax 35% $23 $42
Summary 58% $58

31. Social Security
15.3%
Split between employee
and employer

32. Incentives Matter
Change the rate
Change the behavior

34. Laffer
Curve
Art
Laffer

35. Tax Rate %
$
Tax
Revenue
Laffer Curve
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Dropped Top Marginal
Income Tax Rate
from 70% to 28%

36. If you want more
revenue
Lower the rate

37. 1988
$352 billion
28%
$100 billion
Income above $200,000
Pie x 9.7
Taxes x 5.2
Smaller slice of a larger pie
1980
$36 billion
70%
$19 billion

38. How you slice the pie
Determines the size of the pie