Taxes and Taxation What Are Taxes and How

Taxes and Taxation

What Are Taxes and How Should They Be Levied? § A tax is a mandatory payment to a local, state, or federal government. § Taxes are collected and used for various purposes, including § supporting functions of government, § paying for economic infrastructure, and § funding welfare and public services.

What Are Taxes and How Should They Be Levied? § Taxes are also used to promote social and economic goals § Tax to limit the use of things (cigarettes and alcohol) § Redistribute income (higher taxes for the wealthy)

What Are Taxes and How Should They Be Levied? § Despite the many uses for taxes, they have never been popular § Adam Smith's four maxims, or guidelines, of taxation—equity, certainty, convenience, and efficiency—continue to influence thinking about how taxes should be levied.

What Are Taxes and How Should They Be Levied? § Equity-taxes must be fair § Certainty-the time, manner of payment, amount paid, should all be clear to who pays § Convenience-taxpayers should find the process of paying taxes easy § Efficiency- keep the cost of the tax system low

What Are Taxes and How Should They Be Levied? § Economists differ over how to achieve tax equity, the idea that the tax system should be fair. § Some support the ability-to-pay principle, which suggests that citizens should be taxed according to their wealth.

What Are Taxes and How Should They Be Levied? § Others advance the benefits-received principle, which says that those who benefit from a particular government program should pay for it.

What Are Taxes and How Should They Be Levied? § A challenge in devising a fair tax system is determining who bears the burden of a tax, or the tax incidence. § Often times the tax gets passed on the consumer in the form of higher costs for a product (usually for items that are inelastic)

What Are Taxes and How Should They Be Levied? § Taxes sometimes incur costs by distorting the incentives that normally guide people's choices. § When taxes motivate people to be less productive, these taxes result in a deadweight loss, a reduction in productivity or economic well-being.

What Kinds of Taxes Will You Pay in Your Lifetime? § Americans pay many types of taxes. § The tax base is what is taxed, such as personal income, a good sold at a store, or a piece of property. § The tax rate refers to the percentage of income, or the value of a good, service, or asset, that is paid in tax.

What Kinds of Taxes Will You Pay in Your Lifetime? § Taxes are also defined by their structure. § A proportional tax takes the same share of income at all income levels. § Pro: everyone pays an equal share § Con: the poor have less ability to pay than the rich

What Kinds of Taxes Will You Pay in Your Lifetime? § A progressive tax takes a larger share of income as income increases. § Pro-seen as economic equity § Con-seen as punishing rich for being rich § A regressive tax takes a smaller share of income as income increases. § Pro-High earners pay more as they consume more § Con- Greatest burden is placed on those least able to pay

What Kinds of Taxes Will You Pay in Your Lifetime? § Among the main types of taxes are § income taxes (progressive), § payroll taxes (regressive), § property taxes (proportional), § sales taxes (regressive), § corporate income taxes (progressive), § excise taxes (regressive), and § user fees and tolls (proportional).

How Do U. S. Governments Spend the Revenue They Raise? § The federal government gets most of its revenue from taxes. § 1 st- individual income tax § 2 nd- payroll tax § 3 rd- corporate income tax § 4 th- excise tax § Government doesn’t take in as much as it spends, which gives rise to federal deficit § Make up the difference between the two by borrowing

How Do U. S. Governments Spend the Revenue They Raise? § Each year, the federal government draws up a budget to determine how it will spend its revenue. § Budget year runs from October 1 -September 30 § Mandatory spending is fixed by law and includes entitlement programs like Social Security and Medicare. § Discretionary spending may be raised and lowered as Congress sees fit, as in cases such as national defense.

How Do U. S. Governments Spend the Revenue They Raise? § State and local governments also get most of their revenue from taxes. § They spend their revenue on various services, including § education, § public safety, and § social welfare.

How Do U. S. Governments Spend the Revenue They Raise? § https: //www. youtube. com/watch? v=QPK KQnijns. M&feature=youtu. be