Brainstorm different types of
taxes.

What makes a tax “ideal”?

Fair
 Abililty to pay
 Benefits received
 Gressivity
 Tax rate relative to income

What makes a tax “ideal”?

Effective
 Easy to understand
 Easy to collect
 Difficult to evade
 “incidence of taxation”

What makes a tax “ideal”?

Neutral
 Shouldn’t change behavior

Personal income tax

Gressivity

Level of government

Social Security tax

Gressivity

Level of government

Sales

Gressivity

Level of government

Excise

Gressivity

Level of government

OTHER TAXES
Property
 Estate
 Gift
 Tariff

1.
2.
3.
4.
What are three characteristics of an
“ideal” tax?
What is “gressivity”?
A __________ tax is one in which tax
rate increases as income increases.
A __________ tax is one in which tax
rate decreases as income increases.
1.
2.
3.
4.
A proportional tax is one in which tax
rate __________ regardless of income.
When is a tax not effective?
What does “neutrality” mean in
regard to taxes?
What is meant by the “incidence of
taxation”?
1.
Identify an example of a progressive
tax, a proportional tax, and a
regressive tax.
2.
Why is an excise tax sometimes
referred to as a “sin tax”?

Advantages
Hard to avoid
 Incidence is widely spread
 Not visible to consumer
 Easy to collect
 Even small VAT can raise tremendous revenue


Disadvantages





Invisible to consumers
Can’t be vigilant
Competes with states sales tax
Double sales tax
Regressive tax

Using our list of taxes in the U.S.,
which tax seems to best meet the
criteria for being “ideal”? Explain.

If you were an elected official who
wanted to increase tax revenues,
which of the following would you
prefer to use – individual income,
sales, property, corporate income, user
fees, or VAT (national sales tax)?
Explain.