asdfkj
14. 1 – How Taxes Work
Key Concepts
- Govt. provides certain public goods that generally are not provided by the market (street lightning, highways, law enforcement and the court system.
- Tax: a mandatory payment to a govt
- Revenue: govt. income from taxes and other sources
- Nontax sources include borrowing and lotteries
- Benefits-Received Principle: 1. holds that people who benefit directly from public goods should pay from them in proportion to the amount of benefits received. 2. this principle-financing of road construction and maintenance through taxes on gasoline 3. difficult for govt. to assess exactly how much different taxpayers benefit from services like national defense, national parks, local police and fire protection and public education
- Ability-to-Pay Principle: 1. Holds that people should be taxed on their ability to pay 2. No matter the level of benefits they receive 3. The level of benefits received is not a consideration
Criteria for Taxation
- a given tax may not meet all of the criteria equally well
- Equity 1. Fairness of a tax: established by how uniformly the tax is applied. 2. Equity requires that people in similar situations pay a similar amount of taxes 3. Everyone pays the same gasoline tax
- Simplicity 1. How easy it is for taxpayer for understand and how easy it is for the govt. to collect 2. The sales tax meets the criterion of simplicity. 3. A set percentage of the price of a taxed item is collected every time that item is purchased.
- Efficiency 1. How well the tax achieves the goal of raising revenue for the government with the least cost in terms of administration. 2. Taxpayers’ viewpoint, tax efficiency can be judged by the amount of effort and expense it takes to pay the tax. 3. Of all the types of taxes levied, the individual income tax best meets the criterion of efficiency
Tax Bases and Structures
- Individual income tax: a tax based on an
Key Concepts
- Govt. provides certain public goods that generally are not provided by the market (street lightning, highways, law enforcement and the court system.
- Tax: a mandatory payment to a govt
- Revenue: govt. income from taxes and other sources
- Nontax sources include borrowing and lotteries
- Benefits-Received Principle: 1. holds that people who benefit directly from public goods should pay from them in proportion to the amount of benefits received. 2. this principle-financing of road construction and maintenance through taxes on gasoline 3. difficult for govt. to assess exactly how much different taxpayers benefit from services like national defense, national parks, local police and fire protection and public education
- Ability-to-Pay Principle: 1. Holds that people should be taxed on their ability to pay 2. No matter the level of benefits they receive 3. The level of benefits received is not a consideration
Criteria for Taxation
- a given tax may not meet all of the criteria equally well
- Equity 1. Fairness of a tax: established by how uniformly the tax is applied. 2. Equity requires that people in similar situations pay a similar amount of taxes 3. Everyone pays the same gasoline tax
- Simplicity 1. How easy it is for taxpayer for understand and how easy it is for the govt. to collect 2. The sales tax meets the criterion of simplicity. 3. A set percentage of the price of a taxed item is collected every time that item is purchased.
- Efficiency 1. How well the tax achieves the goal of raising revenue for the government with the least cost in terms of administration. 2. Taxpayers’ viewpoint, tax efficiency can be judged by the amount of effort and expense it takes to pay the tax. 3. Of all the types of taxes levied, the individual income tax best meets the criterion of efficiency
Tax Bases and Structures
- Individual income tax: a tax based on an