1.  A market’s ability to promote cost-reducing or product-enhancing technological change.  The oligopoly structure provides the best structure for technological change.  Since most oligopolies are profitable they have the money to invest in technology changes. (3G…4G Networks)(curved smartphones)  Belief that competitors are being innovative. DYNAMIC EFFICIENCY

2. 2

3.  Merit Goods- Goods that are considered socially desirable by government leaders. ◦ Museums ◦ Healthy eating ◦ Music programs ◦ Park programs  Demerit Goods – goods deemed undesirable in society. ◦ Tobacco, etc. ◦ “Sin tax” 3

4.  Programs that pay benefits to retired and disabled workers and their families.  You pay for them!  Social Security and Medicare are two of the biggest. 4

5.  Different from social-insurance in that they make payments based on need, regardless of age and whether or not you have paid taxes. ◦ Medicaid ◦ Supplemental Security Income- Elderly, disabled ◦ Temporary Assistance for Needy Families (TANF). temporary assistance to families with small children. 5

6.  We use taxes to pay for these programs as well as our military and Government functions.  The more programs people ask for, the more we must pay in taxes. (Socialism vs. Capitalism?)  Taxes always come from local, state or federal government. Individual businesses do not tax customers. 6

7.  Benefits Received Principle ◦ Pay based on the benefits you get from the gov’t. ◦ Welfare, Medicaid, etc.  Ability-to-Pay Principle ◦ Pay regardless of the benefits you use. The more you have, the more you should contribute.  Which do you think is more fair? Why? 7

8.  Proportional Tax- Everyone pays the same %. (ex. 10%)  Progressive Tax – The more you make, the more you pay.  Regressive Tax – T he less you make the more you pay. 8

9.  Which tax is justified by the ability-to-pay principle? ◦ Progressive  Which is justified by the benefits received principle? ◦ Regressive  Which tax will likely bring in the most revenue? ◦ Progressive 9

10. What types of taxes are you familiar with? 10

11. ProgressiveProportionalRegressive IncomeSocial InsuranceSales Corporate Income PropertyExcise EstateCustomsSin GiftSales 11 Most Revenue!

12.  Prizes are taxed!  Donations – Not taxed used as a deduction (there is a limit)  Some food is taxed  Gift Tax – Up to $14,00 can be gifted per child per year tax free.  Why is sales tax regressive? ◦ -fast food, demerit goods etc. ◦ The sales tax Is not based on how much you have. ◦ This is debatable to some economists. 12

13.  An individual can give $14,000 a year per person without paying a gift tax. The giver not the receiver pays the tax. ◦ Example. If there are 3 kids in your family, your mom could gift 14,000 to each child and your dad could also gift 14,000 without paying gift taxes. Help paying for medical bills or school is always excluded from the gift tax.  In your lifetime you may gift a little over 5 million without paying the gift tax.  Charitable donations are also excluded from the gift tax, rather you get a deduction on taxes. 13

14.  Back to Externalities? ◦ An Unintended affect on a third party. Can be positive or negative. ◦ Negative  Mandatory insurance (Obamacare), Noise pollution, minimum wage raise. Often considered a Market failure. ◦ Positive  Vaccines (flu shot), You education, up keep on your home/car ◦ High taxes fund programs, but can hurt economic development (community growth).  What positive or negative externalities at play related to taxes? ◦ Who hurts if the wealthy are taxed more? ◦ Who benefits if high prices are a deterrent to tobacco? ◦ Gift taxes? Up to 14,000 14