Federal Govt. Collects
Different Taxes
Chap. 15
Two Principles of Taxation
• Benefit Principle – Those who benefit from
a service, pay the tax.
– Ex. Bridge tolls
• Ability-to-Pay Principle – Those who can
pay more, are taxed at a higher rate.
– Income tax.
Direct Tax
• Personal Income Taxes- Major source of
revenue. In the U.S. we have a
progressive tax. There are different
brackets which the govt. changes.
• Corporate Income Taxes- Closest we
have to a proportional tax. All corporations
pay same amount based on profit levels.
• Social Insurance Taxes (social security)regressive tax. Fixed tax amount up to a
max. amount regardless of income (direct
tax).
• Excise taxes- indirect taxes on certain
goods on a per-unit basic inc. gasoline,
alcohol, and tobacco. Recently popular are
sin taxes.
• Tariffs- taxes on imported goods.
• Estate and Gift taxes- Progressive taxes
based on the size of property or gift.
• Terms to know:
• Wealth, Income, entitlements, pension,
medicare, State tax, Sales tax, property
tax, Flat tax Disposable income, deficit
spending v. debt
Types of Taxes
• Proportional tax – the same percentage is paid
by everyone, regardless of income. Example:
City business taxes and Medicare.
• Progressive tax – higher percentage on persons
with higher incomes. Also corporate taxes are
progressive.
• Regressive tax – A higher percentage on lower
incomes. Example: State sales tax and Social
Security.
Tax Forms
• W-4 – Filled out at time of employment
and state how many withholdings and
exemptions you will claim. Determines
how much the govt. takes out in taxes
• W-2 – End of your statement from your
employer
• 1040-EZ - Basic tax filing form
Supply-Side Economics
• Theory of creating economic growth
through limited government involvement.
Government involved in providing
incentives to businesses
• “laissez-faire” approach
• Example – Ronald Reagan’s
administrative policies
• Tax cuts and “trickle down” theory
• Look at chart p. 356
Demand-Side Economics
• Theory of economic growth through
government involvement
• John Maynard Keynes
• Example – government spending during
Great Depression and Bank Bailout of
2007 - 2010