Chapter 5 Outline Introduction Nearly 50 of Americans want to keep taxes and services where they are or raise taxes and increase services When asked about just taxes 56 said that the federal income tax that they paid was too much Americans believe that our tax system is extremely complicated In 2006 1 3 of Americans paid no federal income tax after deductions and credits American taxpayers pay federal and state and local taxes Americans typically complain about taxes but don t want cuts to services that they use Facts of Life Governments must pay their bills every year with current revenues surpluses from the past and borrowed funds It is not possible for everyone to get more and pay less for government over time It is possible for some to get more without increasing what is provided if others get less It is also possible for some to pay less without decreasing revenues to government if others pay more Normative Ideas One principle that could be used to decide who should pay and who should benefit is others should pay and we should benefit o Only works if we decide who is others and who is we Examples of exporting taxes to others o Severance taxes levied on natural resources like minerals coal oil and gas Those who consume it will pay these taxes even if it s exported The price Ohioans pay for natural gas from Texas is Texas severance taxes o Taxing goods and services purchased by nonlocals like tariffs on hotels vehicle rentals and tickets to sporting events o Very small portion of taxes are exported o A state s wealth is best measured by the wealth and income of its residents and their ability to pay higher taxes User or client pay paying for any goods or services that we receive o I bought this textbook the laptop I m typing on o Many people believe that education should be based on client pay Ability to pay Government uses taxes to fund programs o Education has been traditionally funded this way because of social concern about the consequences of failing to educate the poor o Most people probably support ability to pay as the basis for paying district wide educational expenses Chapter 5 Outline Most school districts ask parents to provide school supplies for some or many of the supplies for the school year which is client pay o Support for ability to pay systems for school districts breaks down past the local level because people fail to see the benefit of educating people outside of their own towns and more so for other poor states o Income and wealth are bases used to determine ability to pay Income funds bought in over one year Wealth value of that is owned now Income and wealth typically go together but not always o Use of taxes based on ability to pay to fund government programs like education redistributes the wealth of the rich to the poor Redistribution policy money redistributed from the wealthy in taxes to the poor through services Controversy centers on redistribution policy Wealthy are willing to pay for some services for the poor like public sewage water garbage ect Wealthier people will advocate for user pay versus ability to pay systems Poor will favor ability to pay systems vs user pay Private Goods and Public Goods Economics argue that government should provide public goods and services and that private goods and services should be retained in the private sector o Excludable goods and services sellers can guarantee the benefits of goods and services to those who pay and exclude those who do not pay Private sector vendors specialize in things that are excludable because purchasers won t pay if there is no guarantee that they will receive what they will pay for o Private good if a good or service used by one person reduces what is o Non rivaling When everyone can use a good or service without available for others Pie denying it to others Clean air and water Merit goods things we think should not be denied to those who are unable to Private and Public Sectors pay for them Taxes o Food for the hungry shelter for the homeless ect United States has a low tax rate compared to the rest of the country Property Tax o Flat rate tax Chapter 5 Outline All property owners pay the same rate regardless of quantity and value of property they own o Property tax requires determining the value of property and identifying owners o Personal property like clothing electronics ect is NOT used to calculate value of a property o Regressive because the poor pay a higher chunk of their money on property taxes than the wealthy Poor pay property taxes as it is included in their rent o As wealth goes up the of one s wealth on which the property tax is collected decreases governments o Property tax is the primary source of revenues for state and local o Affects older residents because they are more likely to accumulate property wealth over the years Income Tax rates o Progressive rates those with higher taxable incomes pay higher tax o Based on taxable income what you have left after deductions and not total income o Most taxpayers pay multiple tax rates o Rates for taxable income Capital gains pccurs when an asset is held for more than one year and sold for more than its original cost Capital losses occurs when you hold onto assets for over a year and sell them for less than they were worth originally o Higher tax burden falls on the poor because they have more income subject to be taxed than the wealthy because tax advantages are available to the wealthy o Always loopholes for corporations and the wealthy o Young people are affected by this more so because retired older taxpayers have lower taxable incomes Sales Tax o Newest tax o Flat tax rate everyone pays the same o Regressive in application because the wealthy purchase items that are not taxed like stocks bonds travel ect o Affects the young more than the old because the young buy more stuff that is taxable Tax Burden and Incidence Tax base what is subject to be taxed Chapter 5 Outline o Property income sales ect Tax bill Tax base X Tax rate Tax burden Tax bill divided by total income Tax shifting When indiviuals shift the costs of their taxes to others o Landlords shift taxes to tenants o Occurs when the bills for all taxpayers are the same proportions of Neutral tax incidence their abilities to pay Progressive tax incidence o When those with greater ability to pay are taxed a larger percentage than those with lesser ability to pay Property and sales tax have flat rates but are regressive in incidence Regressive tax incidence o
View Full Document
Unlocking...