POLS 207 1st Edition Lecture 10 Outline of Last Lecture I The Origins of Concern with Government Outline of Current Lecture II Government Revenues and Expenditure A Taxes B Tax Burdens Current Lecture Revenues and Expenditures Even if you are sat at home doing nothing you are still consuming goods money is still being spent on defense and other services that we need to live and prosper Merit goods are things that are good for our society This is based on our ability to pay because basic goods such as public education should not be denied to those who cannot afford them Private education is based on user or client pay Public education is based on ability to pay Non rivaling goods everyone can use it and you can t deny it to others A lot of countries have universal healthcare but in America it is only if you live below the poverty line that you are covered by Medicaid Most people that file for bankruptcy file because of medical bills not because of reckless spending The free market for providing healthcare is inefficient and this makes it highly costly and has led to medical tourism Medical tourism going abroad for treatment Tax Incidence Incidence is the effect impact of the tax Measured in terms of tax payments as a percent of income Not the same as rate Neutral rate can have regressive effect Progressive income tax can have regressive effect if income of wealthy is not subject to taxation Progressive The more you earn the more you pay Wealthy pay higher of income than poor pay Does not mean that people will work less because not everyone works for the money they earn Professors don t earn a lot compared to their education level Neutral Everyone pays same of income Regressive Poor pay higher of income than wealthy pay All flat taxes are regressive Ability to pay requires progressive incidence Benefit criterion requires progressive if wealthy get most benefits neutral if all share benefits regressive if poor get most benefits ALL PAY SAME PROPORTION Tax Incidence Neutral OF INCOME IN TAXES HIGH PCT INCOME PAID IN TAXES LOW HIGH INCOME WEALTHY PAY HIGHER PROPORTION OF INCOME IN TAXES HIGH Tax Incidence Progressive PCT Ability to Pay Model The complicated system INCOME that the US have is preferable to many richer people because PAID IN they manage to find loopholes TAXES LOW HIGH INCOME Tax Incidence Regressive Inability to Pay POOR PAY HIGHER PROPORTION Model OF INCOME IN TAXES HIGH PCT INCOME PAID IN TAXES Income Federal Tax Bills and Tax LOW HIGH Burdens INCOME Low Income Taxpayer Total income 30 000 Exemptions deductions 10 000 Income subject to earned income tax 20 000 Income subject to capital gains tax 0 Income tax bill 5 130 Income tax burden 17 High income taxpayer Total income 150 000 Exemptions deductions 60 000 Income subject to earned income tax 60 000 Income subject to capital gains tax 30 000 Income tax bill 15 630 Income tax burden 10 4 Taxes Property tax is a flat rate tax Income tax Sales tax Severance tax
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