Taxation

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

Benjamin Franklin

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

Net Income

• Gross income: How much you earn• Net income: how much you keep

• Net income = gross income - gross income*tax rate

• For example: Mr. Leader if made $47,500 last year.

• Net income = $47,500 - $47,500(.25)• Net income = $47,500 - $11,875 = $35,625

In reality…• US Federal Tax Rates: (only 3 % of Americans make over $250,000)

• Filing under a different status will change the rates.

World Tax Rates

    United Kingdom

21-28% 0-40% 17.5%

Ireland 12.5 % 20-4% 21 %

Mexico 29% 3-29% 15 %

Sweden 28 % 0-59% 25 %

Slovakia 19 %19 % 19 %

Hong Kong 15 % 0-15% 0 %

U.S.A 29.2% (Loop) 0-38%7% Here

Country CorporateTax rate

Income Tax

SalesTax

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

Tax on a household income

% of changes based on income

“tax the rich more!”

The more you make, the higher your tax

“Ability to Pay Principle”

“Benefits Received”

Deductions make this much less progressive. -Buffet

Income Tax Progressive

IncomeTax Rate

$0-$15,000 0%

$15,001-$20,000 10%

$20,000-$30,000 15%

$30,000-$50,000 25%

$50,000-$100,000 33%

$100,001 + 38%

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?

Estate tax• Tax on inheritance• Sometimes called

“death tax”• In US today,

$2,000,000 and up• 45% rate

• Very hot political topic.

Gift tax• Tax on gifts or

rewards

• Games shows, gambling, lottery

• Rate depends on gift

• 35-60 %

• Mr. Leader gives up about 60% of his winnings!

OTHER TAXES

• Wheel Taxes

• Gas Taxes

• Special Taxes (Arena)

• Capital Gains Tax

• Tariff

• Others by community or state…

Revenue / Spending

Why taxes will increase?

Fiscal Policy

• Expansionary Policy » Lower Taxes» Increase Spending / Transfer Payments

• Contractionary Policy» Raise Taxes» Decrease Spending / Transfer Payments

• Raising revenue without discouraging the economy. (Crowding Out)

» Laffer Curve (Tax Revenue v. Tax Rate)

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!!!