1. Chapter 12 Essential Question: Who and what should be taxed?
Taxes and Taxation
Chapter 12
Essential Question:
Who and what should be taxed?

2. Tax basics The only things in life for certain are ___ and ____.
(death and taxes)
The debate over “their fair share”…who should pay taxes? Two options…
Ability-to-pay – taxed according to one’s wealth. We have “luxury taxes” on things like jewelry.
Benefits received – taxed according to who get’s the benefit. Toll roads or gas taxes are examples.
Why taxes? To add money to gov’t and benefit to people. But, deadweight loss occurs when the tax causes more loss than benefit.

3. Types of taxes Tax rate – percent of income (or value) that is paid
Proportional tax – takes same % of income from everyone (regardless of income), AKA a “flat tax”
Progressive tax – takes larger % of income for higher income levels. The U.S. has this.
Regressive tax – takes smaller % of income for higher income levels. This is often unintended, but may result with a flat tax (example: $100 tax to poor matters, to the rich, $1000 is still okay)

4. Taxes you’ll pay in life
Individual income taxes – IRS withholds $ from paycheck, W-2 form
Payroll taxes – tax on wages (Social Security, Medicare)
Property taxes – tax on land, buildings
Sales tax
Corporate income tax – tax on corp. profits
Excise and Luxury taxes – tax on various items
User fees and tolls
Estate and Inheritance taxes – sometimes called “death tax”

5. U.S. government money Where U.S. gov’t gets its $ Where it is spent
Mandatory – is set by law; debt & “entitlements”
Discretionary – is flexible