Tax Acct 1 Tax is a payment Required Imposed by a government agency Not directly tied to the benefit received A tax liability is equal to Tax base Tax rate taxable income Tax rate structures Progressive The individual income tax is a progressive tax Proportional tax rate Flat rate imposes a constant tax rate throughout the tax base Ch 1 Part 2 o Payroll taxes pay Medicare and social security Consumption Taxes Excise Taxes Excise Taxes tax on the production sale or use of a particular item Incorporated into the price of a product so often unnoticed by consumers Insurance Proceeds benefits paid out on insurance policies because of an insurance claim Transfer Tax Base on FMV of everything you own when you die Plus any gifts you made during your life Plus the value of life insurance policies you owned Property Taxes are ad valorem taxes meaning that the tax base for each is the fair market value of the property every year Personal property taxes on tangible or intangible propriety Average Tax Rate Total Tax Taxable Income Not taxable Scholarships Municipal Bond Interest Taxed at a lower rate Some Capital Gains Some Dividends Effective Tax Rate Total Tax Total Income Marginal Tax Rate rate that will be payed on the next dollar that comes through the door Whatever bracket you are in is your marginal tax rate 5 Ways to evaluate different tax systems Sufficiency Enough Equity distributing the tax burden Certainty when where and how will the Convenience without undue hardship to Economy compliance and administration tax be collected the taxpayer costs Static Forecasting ignores the effect of how taxpayers might alter their activities in response to a tax law change Dynamic forecasting which tries to predict possible response by taxpayers to new tax laws