Taxation. Taxes “In this world, nothing is certain but death and taxes.” – Ben Franklin “ Taxation is the price we pay for civilization.” – SC Justice.

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The Design of the Tax System

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Presentation transcript:

Taxation

Taxes “In this world, nothing is certain but death and taxes.” – Ben Franklin “ Taxation is the price we pay for civilization.” – SC Justice Oliver Wendell Holmes “No taxation without representation.” – framers of the US Constitution

Adam Smith’s Principles on Taxation  Wealth of Nations, 1776(father of modern capitalism) 1. Equity – believed the rich should pay a higher tax than the poor 2. Simplicity – tax laws should be straight forward 3. Efficiency – maximum gain for gov’t while inflicting minimal loss on taxpayers

Who should pay and why? Ability-to-pay principle – people should be taxed according to their income (rich taxed more and poor taxed less)….Fed/state income taxes are based on this

Warm up 1/16/15 What are the 3 principles of taxation that Adam Smith believed are essential? What are the 6 purposes of government?

Who should pay and why? Benefits received principle – if you benefit from a program, you should pay for it (e.g. if you drive you should pay for the upkeep of our highway system)

Tax Structure 1. Proportional Tax– takes the same share of income at all income levels (e.g. Property/School tax)

2.Progressive Tax– takes a larger share of income as income increases (e.g. Income Tax)

3. Regressive Tax– takes a smaller share of income as income increases (e.g. Sales Tax- poor pay more of their income in sales tax than the rich )

Tax Base and Tax Rate  Tax Base : the thing that is taxed  Ex. Property, good, income, revenues  Tax Rate : the percentage of income- of value of good/service- that is taxed  Ex. Income tax rate=20% you pay 20% of income in taxes.  Ex. If Sales tax is 6%, you pay 6% of total purchase in sales tax.

ProportionalProgressiveRegressive XXXXXXXXXXXX Property Taxes Sales Taxes Social Security Taxes Income Taxes Excise/Luxury Taxes (Sin taxes) Toll Tax Estate/Inheritance Taxes

ProportionalProgressiveRegressive Property taxesIncome taxesSales User Fees/TollsLuxuryExcise Payroll (Medicare)Estate/Inheritance Payroll (Social Security) Property Taxes Sales Taxes Payroll Taxes Income Taxes Excise/Luxury Taxes (Sin taxes) User fees/tolls Estate/Inheritance Taxes

Copy and Complete TaxTax BaseTax Structure Income taxPersonal incomeprogressive Social Sec tax Home property tax 5% sales tax Corporate Income tax Tax on jewelry Public park entry fee Toll Road Tax

Copy and Complete TaxTax BaseTax Structure Is tax Fair? Why? Income taxPersonal income progressive Social Sec taxPersonal income regressive Home property taxPropertyproportional 5% sales taxGoods/ services regressive Corporate Income taxrevenuesprogressive Tax on jewelrygoodprogressive Public park entry feeServiceproportional Estate taxIncomeprogressive Toll Road Taxserviceproportional