Taxes and Taxation Chapter 12 Essential Question Who

Taxes and Taxation Chapter 12 Essential Question: Who and what should be taxed?

Tax basics • The only things in life for certain are ___ and ____. • (death and taxes) • The debate over “their fair share”…who should pay taxes? Two options… 1. Ability-to-pay – taxed according to one’s wealth. We have “luxury taxes” on things like jewelry. 2. Benefits received – taxed according to who get’s the benefit. Toll roads or gas taxes are examples. • Why taxes? To add money to gov’t and benefit to people. But, deadweight loss occurs when the tax causes more loss than benefit.

Types of taxes • Tax rate – percent of income (or value) that is paid 1. Proportional tax – takes same % of income from everyone (regardless of income), AKA a “flat tax” 2. Progressive tax – takes larger % of income for higher income levels. The U. S. has this. 3. Regressive tax – takes smaller % of income for higher income levels. This is often unintended, but may result with a flat tax (example: $100 tax to poor matters, to the rich, $1000 is still okay)

Taxes you’ll pay in life • Individual income taxes – IRS withholds $ from paycheck, W-2 form • Payroll taxes – tax on wages (Social Security, Medicare) • Property taxes – tax on land, buildings • Sales tax • Corporate income tax – tax on corp. profits • Excise and Luxury taxes – tax on various items • User fees and tolls • Estate and Inheritance taxes – sometimes called “death tax”

U. S. government money • Where U. S. gov’t gets its $ • Where it is spent • Mandatory – is set by law; debt & “entitlements” • Discretionary – is flexible