Professional Documents
Culture Documents
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Behavior adjustment Sin tax a relatively high tax designed to raise revenue as well as reduce consumption of a socially undesirable product Reduction or elimination of a tax can encourage behavior
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Productivity and Growth Workers may lose incentive to work Businesses may not expand production Households may save less thus hindering Investment
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Types of Taxes
Proportional Tax imposes the same percentage rate of taxation on everyone regardless of income; the average tax rate is constant regardless of income Progressive Tax imposes a higher percentage rate of taxation on persons with high incomes; a marginal tax rate is usually employed Regressive Tax imposes a higher percentage rate of taxation on low incomes than on high incomes Average Tax Rate total taxes paid divided by total income; tax paid as a percentage of income
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Schedule X Single
If taxable income is over-- But not over-$0 $7,300 $29,700 $71,950 $150,150 $326,450 $7,300 $29,700 $71,950 $150,150 $326,450 no limit The tax is: 10% of the amount over $0 $730 plus 15% of the amount over 7,300 $4,090.00 plus 25% of the amount over 29,700 $14,652.50 plus 28% of the amount over 71,950 $36,548.50 plus 33% of the amount over 150,150 $94,727.50 plus 35% of the amount over 326,450
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Indexing an upward revision of tax brackets to keep workers from paying higher taxes just because of inflation.
Tax Rate
6.20% 1.45%
Maximum Tax
$6,045 No ceiling
Taxable Income
$0-50,000 50,001-75,000 75,001-100,000 100,001-335,000 335,001-10,000,000 10,000,001-15,000,000 15,000,001-18,333,333 Over 18,333,333
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6 property (assets) when a person dies Gift Tax a tax on donations of money or wealth and is paid by the person who makes the gift Tariffs (customs duties) a charge levied on goods brought in from other countries (imports) User fees charges levied for the use of a good or service (e.g. national park entrance fees)
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7 permanently attached such as elevators and central air conditioners; raises the most revenue Tangible Personal Property all tangible items of wealth not permanently attached to land or buildings such as automobiles, furniture, farm animals, the stock of goods in retail stores, and clothing Intangible Personal Property property with an invisible value and is represented by paper documents such as a stock, bond, patent, or check 3. Utility and Liquor Store Income Earnings of public utilities and state-owned liquor stores 4. City and town sales taxes
Incidence of a Tax
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Incidence of a Tax
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9 VAT (Value Added Tax) a tax placed on the value that manufacturers add at each stage of production; a tax on consumption instead of income
Advantages of a VAT 1. Hard to avoid because tax collector levies it on the total amount of sales minus the cost of inputs 2. Incidence of the tax is widely spread 3. Tax is not visible to the consumer because it has been built in to the price 4. Easy to collect since businesses already make regular tax payments to the government 5. A relatively small VAT can raise a large amount of revenue
Disadvantages of VAT 1. 2. Tends to be invisible to consumers Would compete with already existing US sales taxes
Tax Terminology
117186228.doc 24 Jan 08
10 (Chapter 9 pages 208-235) Income Tax - a tax on peoples earnings Proportional Tax imposes the same percentage rate of taxation on everyone regardless of income; the average tax rate is constant regardless of income Progressive Tax imposes a higher percentage rate of taxation on persons with high incomes; a marginal tax rate is usually employed Regressive Tax imposes a higher percentage rate of taxation on low incomes than on high incomes Average Tax Rate total taxes paid divided by total income; tax paid as a percentage of income VAT (Value Added Tax) a tax placed on the value that manufacturers add at each stage of production Sales Tax a general tax levied on consumer purchases of nearly all products Corporate Income Tax the tax a corporation pays on its profits Excise Taxes a tax on the manufacture or sale of certain items, such as gasoline and liquor; placed on domestic goods Estate Tax the tax the government levies on the transfer of property (assets) when a person dies Gift Tax a tax on donations of money or wealth and is paid by the person who makes the gift Tariffs (customs duties) a charge levied on goods brought in from other countries (imports) Luxury Tax an excise tax on a luxury good or service (a good or service whose demand increases faster than income when income grows Capital Gains Tax tax on profits made from the sale of an asset held for 18 months Tax for a government sponsored pension a tax to provide an income after a person retires
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Health Care Tax a tax to provide health and medical care for citizens Property Tax a tax on real property and tangible and intangible property Real Property includes real estate, buildings, and anything permanently attached such as elevators and central air conditioners Tangible Personal Property all tangible items of wealth not permanently attached to land or buildings such as automobiles, furniture, farm animals, the stock of goods in retail stores, and clothing Intangible Personal Property property with an invisible value and is represented by paper documents such as a stock, bond, patent, or check User fees charges levied for the use of a good or service
117186228.doc 24 Jan 08