Download Taxes Power Point-2

Taxation
“In this world nothing can be said to be certain,
except death and taxes.”
Benjamin Franklin
Why We Tax…
• Fiscal Policy
• Cost of Government & Goods /Services
• Redistribute Income (Lorenz Curve)
• Encourage / Discourage Behavior
Sin Taxes (Excise Tax)
– Discouraging behavior or raising revenue?
• Cigarettes / Tobacco
• Alcohol
Net Income
• Gross income: How much you earn
• Net income: how much you keep
• Net income = gross income - gross income*tax
rate
• For example: Mr. Leader if made $47,500 last
year.
• Net income = $47,500 - $47,500(.25)
• Net income = $47,500 - $11,875 = $35,625
In reality…
•
US Federal Tax Rates: (only 3 % of Americans make over $250,000)
•
Filing under a different status will change the rates.
World Tax Rates
Country
Corporate
Tax rate
Income
Tax
Sales
Tax
United
Kingdom
21-28%
0-40%
17.5%
Ireland
12.5 %
20-4%
21 %
Mexico
29%
3-29%
15 %
Sweden
28 %
0-59%
25 %
Slovakia
19 %
19 %
19 %
Hong Kong
15 %
0-15%
0%
U.S.A
29.2% (Loop) 0-38%
7%
Here
Property Tax (Flat) Proportional
• Tax on something
you own
• Usually expensive
like your house or
boat
• For example:
$100,000 home
– 5% property tax rate
• 100,000 X .05 =
$5,000 property tax
Income Tax Progressive
Tax on a household income
% of changes based on
income
“tax the rich more!”
The more you make, the
higher your tax
“Ability to Pay Principle”
“Benefits Received”
Deductions make this much
less progressive. -Buffet
Income
$0-$15,000
Tax
Rate
0%
$15,001$20,000
10%
$20,000$30,000
15%
$30,000$50,000
$50,000$100,000
$100,001 +
25%
33%
38%
Regressive Tax
• Smaller % taken the higher your
income
• Sales tax
• For example: 5% tax,
$25,000/year w/$10,000
consumption pays: 10,000 X .05
= $500, or 2% of total income
• $50,000/year w/$15,000
consumption pays: 15,000 X .05
= $750, or 1.5% of total income
• Incentive?
Estate tax
• Tax on inheritance
• Sometimes called
“death tax”
• In US today,
$2,000,000 and up
• 45% rate
• Very hot political
topic.
Gift tax
• Tax on gifts or
rewards
• Games shows,
gambling, lottery
• Rate depends on
gift
• 35-60 %
• Mr. Leader gives up
about 60% of his
winnings!
OTHER TAXES
•
•
•
•
•
•
Wheel Taxes
Gas Taxes
Special Taxes (Arena)
Capital Gains Tax
Tariff
Others by community or state…
Revenue / Spending
Why taxes will increase?
• Social Expectations “I deserve…”
» Entitlements
» Welfare
» Lorenz Curve
• Increase Cost of Technology
• Increase Life Expectancy
» Social Security
» Medicare
Fiscal Policy
• Expansionary Policy
» Lower Taxes
» Increase Spending / Transfer Payments
• Contractionary Policy
» Raise Taxes
» Decrease Spending / Transfer Payments
• Raising revenue without discouraging the
economy. (Crowding Out)
» Laffer Curve (Tax Revenue v. Tax Rate)
Problems With Fiscal Policy
• Effectiveness
– Slow process. Changing tax laws.
• Political Consequences
– Expansionary policy may be popular but contractionary
policy may get your opponent elected.
– Members of the “Fed” don’t have to be reelected.
• Budget Deficit (Surplus) / National Debt
– Check out the U.S. Debt Clock!!!