Taxation

Taxes“In this world, nothing is certain but death and taxes.” – Ben Franklin

“Taxation is the price we pay for civilization.”

– SC Justice Oliver Wendell Holmes

“No taxation without representation.” – framers of the US Constitution

Adam Smith’s Principles on Taxation

Wealth of Nations , 1776(father of modern capitalism)

1.Equity – believed the rich should pay a higher tax than the poor

2.Simplicity – tax laws should be straight forward

3.Efficiency – maximum gain for gov’t while inflicting minimal loss on taxpayers

Who should pay and why?Ability-to-pay principle – people should be taxed according to their income (rich taxed more and poor taxed less)….Fed/state income taxes are based on this

Warm up 1/16/15What are the 3 principles of taxation that Adam Smith believed are essential?

What are the 6 purposes of government?

Who should pay and why?

Benefits received principle – if you benefit from a program, you should pay for it (e.g. if you drive you should pay for the upkeep of our highway system)

Tax Structure

1. Proportional Tax– takes the same share of income at all income levels(e.g. Property/School tax)

2. Progressive Tax– takes a larger share of income as income increases(e.g. Income Tax)

3. Regressive Tax– takes a smaller share of income as income increases

(e.g. Sales Tax- poor pay more of their income in

sales tax than the rich)

Tax Base and Tax Rate Tax Base: the thing that is taxed

Ex. Property, good, income, revenues

Tax Rate: the percentage of income- of value of good/service- that is taxed Ex. Income tax rate=20% you pay 20% of

income in taxes. Ex. If Sales tax is 6%, you pay 6% of total

purchase in sales tax.

Proportional Progressive Regressive

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Property Taxes Sales Taxes

Social Security Taxes

Income Taxes

Excise/Luxury Taxes (Sin taxes)

Toll Tax

Estate/Inheritance Taxes

Proportional Progressive Regressive

Property taxes Income taxes Sales

User Fees/Tolls Luxury Excise

Payroll (Medicare) Estate/Inheritance Payroll (Social Security)

Property TaxesSales Taxes

Payroll Taxes

Income Taxes

Excise/Luxury Taxes (Sin taxes)

User fees/tolls

Estate/Inheritance Taxes

Copy and CompleteTax Tax Base Tax

Structure

Income tax Personal income progressive

Social Sec tax

Home property tax

5% sales tax

Corporate Income tax

Tax on jewelry

Public park entry fee

Toll Road Tax

Copy and CompleteTax Tax Base Tax

StructureIs tax Fair? Why?

Income tax Personal income

progressive

Social Sec tax Personal income

regressive

Home property tax Property proportional

5% sales tax Goods/ services

regressive

Corporate Income tax

revenues progressive

Tax on jewelry good progressive

Public park entry fee Service proportional

Estate tax Income progressive

Toll Road Tax service proportional