Ch. 9 Taxes

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<ul><li> 1. Taxes</li></ul> <p> 2. </p> <ul><li>What is the decision being made in this cartoon? </li></ul> <ul><li>Are these two things controllable? </li></ul> <p> 3. Economic Impact of Taxes </p> <ul><li>Taxes and other forms of govt. revenue influence the economy by affecting </li></ul> <ul><li><ul><li>Resource allocation </li></ul></li></ul> <ul><li><ul><li>Consumer behavior </li></ul></li></ul> <ul><li><ul><li>National productivity and growth </li></ul></li></ul> <p> 4. Resource Allocation </p> <ul><li>Taxes are directly related with the movement in the market. </li></ul> <ul><li>They are levied on goods/services and production. </li></ul> <ul><li>This directly affects supply, demand, and equilibrium price. </li></ul> <p> 5. Behavior adjustment </p> <ul><li>Taxes are used to either help out or punish consumers </li></ul> <ul><li><ul><li>Homeowners get tax breaks on mortgages </li></ul></li></ul> <ul><li><ul><li>Sin taxes are levied on alcohol, tobacco, etc. </li></ul></li></ul> <p> 6. Productivity and Incidence of Tax </p> <ul><li>Taxes affect productivity because of the taxation of income. </li></ul> <ul><li>They change the incentives to save, invest, and work. </li></ul> <ul><li>The final burden of the tax can be measured by supply and demand. </li></ul> <ul><li>It is much easier for the producer to shift the burden of the tax to the consumer. </li></ul> <p> 7. The Criteria for Effective Taxes </p> <ul><li>Equity- Fairness is so important for effective taxes. The goal is to try and avoid loopholes so everyone gets to pay a fair share. </li></ul> <ul><li>Simplicity- Laws should be written so both the payer and tax collector can understand them. </li></ul> <ul><li><ul><li>Individual income tax-complex </li></ul></li></ul> <ul><li><ul><li>Sales tax- simple </li></ul></li></ul> <p> 8. </p> <ul><li>Efficiency-should be relatively easy to administer and reasonably successful at generating revenue. </li></ul> <ul><li><ul><li>Individual income taxvery efficient </li></ul></li></ul> <ul><li><ul><li>Tall taxes are not so efficient. </li></ul></li></ul> <p> 9. Two Principles of Taxation </p> <ul><li>Benefit PrincipleThose who benefit from govt. goods should pay in proportion to the amount of benefits they receive. </li></ul> <ul><li>Ability to Paypeople should be taxed according to their ability to pay, regardless of the benefits that they receive. </li></ul> <p> 10. Types of Taxes </p> <ul><li>Proportional tax- imposes same percentage rate of taxation on everyone. </li></ul> <ul><li>Progressive tax- imposes a higher tax on people with higher incomes. </li></ul> <ul><li>Regressive tax- imposes higher rate on low incomes. </li></ul> <p> 11. Individual Income Taxes (Fed.System) </p> <ul><li>The 16 thamendment allows Congress to levy taxes. </li></ul> <ul><li>Govt. collected nearly 45% of its income from individual income tax. </li></ul> <ul><li>It is paid through payroll deduction over time. </li></ul> <ul><li>It is a progressive tax and has a provision for indexing. Indexing keeps workers from paying more in taxes due to inflation. </li></ul> <p> 12. FICA </p> <ul><li>Employers and employees share the burden of paying these taxes. </li></ul> <ul><li>You see a deduction in your check for both Medicare and Social Security. </li></ul> <ul><li>Social Security is a 6.2% flat tax rate. </li></ul> <ul><li>Medicare is taxed at a 1.45% rate. </li></ul> <p> 13. Other Federal Taxes </p> <ul><li>Excise Tax is levied on things like gas and liquor. </li></ul> <ul><li>Estate taxes are levied when property is transferred form one individual to another. </li></ul> <ul><li>Gift taxes are made on donations, the giver is the person responsible for this tax. </li></ul> <p> 14. Corporate Tax and Duty </p> <ul><li>Corporations have to pay taxes on income and this accounts for the third largest category of taxes. </li></ul> <ul><li>Customs duties are levied on goods brought into the United States. </li></ul> <ul><li>About 1% of federal revenue is collected through miscellaneous fees. </li></ul> <p> 15. </p> <ul><li>Who is this man working for? </li></ul> <ul><li>What is this cartoon saying about the government? </li></ul> <ul><li>How is irony incorporated in this cartoon? </li></ul> <p> 16. State Govt. Revenue sources </p> <ul><li>Intergovernmental revenue is the largest form of state revenue. This is funds collected by one level of govt. and redistributed to another level. </li></ul> <ul><li>Sales taxes are the second largest form of state revenue. </li></ul> <ul><li>Other forms of revenue comes various state supported sources such as university tuitions, interest earnings, etc. </li></ul> <p> 17. Local Government revenue </p> <ul><li>Local govts. receive the largest part of their revenue from intergovernmental revenues. Intended for education/welfare. </li></ul> <ul><li>Property taxes raise a significant amount of revenue for local govt. </li></ul> <ul><li>Public utilities and state owned liquor stores raise the third largest form of revenue for local govt. </li></ul> <p> 18. Tax Reform </p> <ul><li>Tax reform (1981)Reagan proposed the Economic Recovery Tax Act to reduce taxes for many business owners. </li></ul> <ul><li>Businesses received tax relief in the form of accelerated depreciation which allowed a reduction in federal income tax payments. </li></ul> <ul><li>They also received tax credits on investment.</li></ul> <p> 19. Tax Reform (1986, 1993) </p> <ul><li>In 1983, more than 3,000 millionares paid no income tax. </li></ul> <ul><li>Congress passed a tax reform that reduced brackets to two. </li></ul> <ul><li>Added surcharge to tax higher income more. </li></ul> <ul><li>Govt. spending was high. </li></ul> <ul><li>Omnibus Budget Reconciliation Act was passed so the govt. could balance the budget. </li></ul> <ul><li>Added two more marginal brackets. </li></ul> <p> 20. Tax Reform in 1997 and 2001 </p> <ul><li>Taxpayer Relief Act was passed to help out many individuals. </li></ul> <ul><li>Taxes were cut across the board due to a high surplus in revenue. </li></ul> <ul><li>Added a 10% bracket and lower the percentile for the top two brackets. </li></ul> <ul><li>High child tax credits were added as well. </li></ul> <p> 21. The Value Added Tax </p> <ul><li>People want to shift the tax from income to consumption. </li></ul> <ul><li>(VAT) is placed on the value added to each stage of production. </li></ul> <ul><li>Production of g/s would be taxed as the product is passed from producer to consumer. </li></ul> <p> 22. Advantages vs. Disadvantages </p> <ul><li>Hard to avoid because the tax collector levies on total amount of sales less the cost of inputs. </li></ul> <ul><li>Is widely spread </li></ul> <ul><li>Easy to collect </li></ul> <ul><li>Would affect peoples behavior. </li></ul> <ul><li>Is invisible to consumer. </li></ul> <ul><li>Would compete with state sales taxes. </li></ul> <p> 23. Advantages vs. Disadvantages of Flat Tax </p> <ul><li>Simplicity offered to taxpayer. </li></ul> <ul><li>Closes most loopholes </li></ul> <ul><li>Reduces the need for tax accountants. </li></ul> <ul><li>Removes many of the behavior incentives already built into tax code. </li></ul> <ul><li>No one knows exactly what rate is needed to replace the revenues already collected from the current system. </li></ul>