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Taxation

Explore the world of taxation through the lens of fiscal policy, including the cost of government, income redistribution, sin taxes, and more. Learn about different tax rates, deductions, and types of taxes such as property tax, income tax, and inheritance tax. Understand how taxes impact revenue, spending, and economic policies. Delve into the complexities of fiscal policy tools, expansionary and contractionary policies, and the challenges and consequences they bring. Unravel the dynamics of budget deficits, national debt, and the intricate workings of the tax system.

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Taxation

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  1. Taxation “In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin

  2. Why We Tax… • Fiscal Policy • Cost of Government & Goods /Services • Redistribute Income (Lorenz Curve) • Encourage / Discourage Behavior Sin Taxes (Excise Tax) • Discouraging behavior or raising revenue? • Cigarettes / Tobacco • Alcohol

  3. Net Income • Gross income: How much you earn • Net income: how much you keep • Net income = gross income - gross income*tax rate • For example: If Mr. Salem made $47,500 last year. • Net income = $47,500 - $47,500(.25) • Net income = $47,500 - $11,875 = $35,625

  4. In reality… • US Federal Tax Rates: (only 3 % of Americans make over $250,000) • Filing under a different status will change the rates.

  5. World Tax Rates Corporate Tax rate Income Tax Sales Tax Country

  6. Property Tax (Flat) Proportional • Tax on something you own • Usually expensive like your house or boat • For example: $100,000 home • 5% property tax rate • 100,000 X .05 = $5,000 property tax

  7. Income Tax Progressive Tax on a household income % of changes based on income The more you make, the higher your tax “Ability to Pay Principle” Deductions make this much less progressive. -Buffet

  8. Regressive Tax • Smaller % taken the higher your income • Sales tax • For example: 5% tax, $25,000/year w/$10,000 consumption pays: 10,000 X .05 = $500, or 2% of total income • $50,000/year w/$15,000 consumption pays: 15,000 X .05 = $750, or 1.5% of total income • Incentive?

  9. Estate Vs. Inheritance tax • Estate Tax – Federal Government • Inheritance Tax – State Govenments • Sometimes called “death tax” • Very hot political topic.

  10. Gift tax • Tax on gifts or rewards • Games shows, gambling, lottery • Rate depends on gift • 35-60 %

  11. OTHER TAXES • Wheel Taxes • Gas Taxes • Special Taxes (Arena) • Capital Gains Tax • Tariff • Others by community or state…

  12. Revenue / Spending

  13. Why taxes will increase? • Social Expectations “I deserve…” • Entitlements • Welfare • Lorenz Curve – graph that depicts distribution of wealth • Increase Cost of Technology • Increase Life Expectancy • Social Security • Medicare

  14. Types of Fiscal Policy • The government can operate using 3 basic types of tools • 1. Government Purchases • 2. Taxes • 3. Transfer Payments (payments to households) • Social Security • Unemployment compensation • Welfare

  15. Types of Fiscal Policy • Expansionary Policy • Lower Taxes • Increase Spending / Transfer Payments • Contractionary Policy • Raise Taxes • Decrease Spending / Transfer Payments

  16. Problems With Fiscal Policy • Effectiveness • Slow process. Changing tax laws. • Political Consequences • Expansionary policy may be popular but contractionary policy may get your opponent elected. • Members of the “Fed” don’t have to be reelected. • Budget Deficit (Surplus) / National Debt • Check out the U.S. Debt Clock!!!

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