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!!!
