Micro Chapter 29

1. Micro Chapter 29 Presentation 2- Taxation

2. Question • When you live on your own, what expenses would you have to pay?

3. I Thought I made Money! • $2512.91….24 payments $60309.84 total • $502.44 to STRS • $585.10 to Fed income tax • $130.18 to state income tax • $71.94 to Medicare • $99.24 to Mayfield Village • $74 car insurance • $100 gasoline • $83 cell phone • $57.06 to medical insurance • $300 to 403 B • $1225 to mortgage • $110 to electric • $95 to gas • $23 to H20 and sewer • $118 to cable/internet • $150 food • $150 entertainment • =$3873.96 spending per month • $5025.82 income

4. Effective Tax Rate • The actual amount (%) of tax paid by an individual after deductions have been made

5. Average Tax Rate • Total tax paid divided by total (taxable) income, as a percentage

6. Progressive Tax • Average tax rate increases as income increases • A larger absolute value and a larger percentage of income as income increases

7. Regressive Tax • Average tax rate declines as income increases • Smaller proportion of income as income increases

8. Proportional Tax • Average tax remains the same regardless of the size of income

9. Personal Income Tax • Progressive tax with rates ranging from 10-35% of income • Deductions such as mortgage interest can make the taxes slightly less progressive

10. 2011 IRS Tax Brackets

11. Sales Tax • Although it would seem to be proportional, sales tax is actually regressive • A larger portion of the low-income family’s income is exposed to the tax than the rich

12. Corporate Income Tax • Set up to be a proportional tax of 35% • However, most companies pass along part of this rate to the consumer making the tax regressive

13. Payroll Taxes • Taxes levied on payrolls such as Medicare and Social Security • Regressive Tax

14. Property Taxes • Regressive due to: • 1. Most landlords add rent to cover costs • 2. As a % of income, property taxes are higher for low-income individuals

15. Efficiency Loss of a Tax/Deadweight Loss • The loss of net benefits to society because a tax reduces the production and consumption of a taxed good below the level of allocative efficiency