Taxes Tax is revenue paid to local, state, national governmentsTax is revenue paid to local, state, national governments Used for national defense, education, highways, and law enforcementUsed for national defense, education, highways, and law enforcement Congress has power to tax based on article I of the ConstitutionCongress has power to tax based on article I of the Constitution - limits on taxation; not for individual purpose - limits on taxation; not for individual purpose - fed taxes same for every state - fed taxes same for every state - can not tax church services - can not tax church services

Types of Taxes Tax base – income, property, good or service subject to taxTax base – income, property, good or service subject to tax Individual income tax – tax on a person’s earningsIndividual income tax – tax on a person’s earnings Sales tax – tax on good or service soldSales tax – tax on good or service sold Property tax – tax on value of propertyProperty tax – tax on value of property Corporate income tax – a tax on a companies profitCorporate income tax – a tax on a companies profit

Government Revenue

Tax Structures Proportional Tax – a tax for which the percentage of income paid in taxes remains the same for income levelsProportional Tax – a tax for which the percentage of income paid in taxes remains the same for income levels Progressive Tax – a tax for which the percentage of income paid in taxes increases as income increasesProgressive Tax – a tax for which the percentage of income paid in taxes increases as income increases Regressive tax – a tax for which the percentage of income paid in taxes decreases as income increases; ex sales taxRegressive tax – a tax for which the percentage of income paid in taxes decreases as income increases; ex sales tax

Determining Fairness Benefits-received principle – a person should pay taxes based on the level of benefits he or she expects to receive; ex-gas taxBenefits-received principle – a person should pay taxes based on the level of benefits he or she expects to receive; ex-gas tax Ability-to-pay – people should pay taxes according to their ability to pay; basic principle behind progressive taxAbility-to-pay – people should pay taxes according to their ability to pay; basic principle behind progressive tax

The Balancing Act How much revenue does a good tax generate?How much revenue does a good tax generate? Answer – enough but not too muchAnswer – enough but not too much Enough so citizens needs are met but not too much where tax discourages productionEnough so citizens needs are met but not too much where tax discourages production

Who Bears the tax Burden? Depends on elasticity of demand of good being taxed;Depends on elasticity of demand of good being taxed; example – gasoline example – gasoline Congress considers who pays the final burden of tax or incidence of a taxCongress considers who pays the final burden of tax or incidence of a tax