- What is the decision being made in this cartoon?
- Are these two things controllable?
3. Economic Impact of Taxes
- Taxes and other forms of govt. revenue influence the economy by affecting
- National productivity and growth
4. 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.
5. 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.
6. 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.
7. 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
- Efficiency-should be relatively easy to administer and reasonably successful at generating revenue.
- Individual income taxvery efficient
- Tall taxes are not so efficient.
9. Two Principles of Taxation
- Benefit PrincipleThose who benefit from govt. goods should pay in proportion to the amount of benefits they receive.
- Ability to Paypeople should be taxed according to their ability to pay, regardless of the benefits that they receive.
10. 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.
11. Individual Income Taxes (Fed.System)
- The 16 thamendment 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.
- 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.
13. 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.
14. 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?
16. 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.
17. 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.
18. 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.
19. 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.
- Omnibus Budget Reconciliation Act was passed so the govt. could balance the budget.
- Added two more marginal brackets.
20. 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.
21. 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.
22. Advantages vs. Disadvantages
- Hard to avoid because the tax collector levies on total amount of sales less the cost of inputs.
- Would affect peoples behavior.
- Is invisible to consumer.
- Would compete with state sales taxes.
23. Advantages vs. Disadvantages of Flat Tax
- Simplicity offered to taxpayer.
- 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.