Taxation

Why does U.S. government tax it’s citizens and corporations?

Taxation Federal Government Expenditures

Taxation What do we mean by a progressive tax? How about a regressive tax? How does U.S. currently raise tax revenues?

Taxation How does the U.S. income tax system work?

Taxation How progressive is U.S. income tax system? Top marginal rate 94% in 1940s 91% 1950s – 1960s 70% 1960s s 28% 1980s 35% - 38% 1990s – today Current marginal rates (2010) on “taxable income” SingleHead of HHMarriedMarginal Rt 0 – – 11,2000 – 15,65010% ,85011,200-42,65015,650-63,70015% 31,850-77,00042, ,10063, ,50025% 77, ,850110, ,350128, ,85028% 160, ,700178, ,700198, ,70033% > 349,700> 349,700> 349,70035%

Taxation How progressive is U.S. income tax system? Marginal vs. Average tax rates? Consider two married couples, one earning $375,000/yr and the other earning $95,000/yr.

Taxation Taxes actually based on AGI (Adjusted Gross Income) What is this? How does it differ from Gross Income?

Taxation

Capital Gains Rates Marginal RtShort-term RateLong-term Rate 10%10%0% 15%15%0% 25%25%15% 28%28%15% 33%33%15% 35%35%15%

Taxation Payroll taxes Taxes paid for each person by employer directly out of each paycheck. Often referred to as FICA taxes How do payroll taxes work? So are these taxes progressive/regressive? Separate tax system since these funds are “used to pay for Social Security and Medicare” What are these programs, how do they work? Why the quotes?

Taxation Corporate Tax rate Extremely complicated Rates range from 19 – 35% of net earnings (gross receipts minus “cost of doing business”) Why tax corporations?

Taxation “The taxes I pay to the federal government, including the payroll tax that is paid for me by my employer, Berkshire Hathaway, are roughly the same proportion of my income as that paid by the receptionist in our office. My case is not atypical -- my earnings, like those of many rich people, are a mix of capital gains and ordinary income -- nor is it affected by tax shelters (I've never used any). As it works out, I pay a somewhat higher rate for my combination of salary, investment and capital gain income than our receptionist does. But she pays a far higher portion of her income in payroll taxes than I do....” -Warren Buffet

Taxation Average Federal Tax rates by Income Quintile and Tax Source (CBO) Why is income tax rate negative for lowest two quartiles?

Taxation

Household Income Distributions – pre-tax vs post-tax and transfer

Taxation What are concerns with taxation and progressive taxation in general?

Taxation Inflation adjusted increase in after-tax household income between 1979 and 2007 (Source: Congressional Budget Office)

Taxation How does U.S. compare to other countries?