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TAMU POLS 207 - Government Revenues and Expenditures I
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Revenues and ExpendituresEven 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 IncidenceIncidence 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.ProgressiveThe 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.NeutralEveryone pays same % of income.RegressivePoor 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.Tax Incidence: Neutral:Tax Incidence: Progressive:Ability to Pay ModelThe complicated system that the US have is preferable to many richer people because they manage to find loopholes.Tax Incidence: Regressive: Inability to Pay ModelIncome, Federal Tax Bills and Tax BurdensLow Income Taxpayer:Total income $30,000Exemptions + deductions $10,000Income subject to earned income tax $20,000Income subject to capital gains tax $0Income tax bill $5,130Income tax burden 17%High income taxpayer:Total income $150,000Exemptions + deductions $60,000Income subject to earned income tax $60,000Income subject to capital gains tax $30,000Income tax bill $15,630Income tax burden 10.4%TaxesProperty tax is a flat rate tax.Income taxSales taxSeverance taxPOLS 207 1st Edition Lecture 10Outline of Last Lecture I. The Origins of Concern with GovernmentOutline of Current Lecture II. Government Revenues and ExpenditureA. TaxesB. Tax BurdensCurrent 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.←←←←←← Tax Incidence: Neutral:←←←←←←←←←←←←←←←←←←← Tax Incidence:Progressive: ← Ability to Pay Model← The complicated systemthat the US have is preferableto many richer people becausethey manage to find loopholes.←←←←←←INCOMELOWPCT. INCOME PAID IN TAXESHIGHHIGHALL PAY SAME PROPORTION OF INCOME IN TAXESINCOMELOWPCT. INCOME PAID IN TAXESHIGHHIGHWEALTHY PAY HIGHER PROPORTION OF INCOME IN TAXES← Tax Incidence: Regressive: Inability to PayModel←←←←←←←←←←← Income, Federal Tax Bills and TaxBurdens← 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 taxINCOMELOWPCT. INCOME PAID IN TAXESHIGHHIGHPOOR PAY HIGHER PROPORTION OF INCOME IN


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TAMU POLS 207 - Government Revenues and Expenditures I

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