1. Ap u.s. government & politics
Wednesday, February 28, 2018

2. Current events discussion
7 Minutes

3. Tax Policy

4. Taxes on Goods

5. Excise Taxes Taxes on the production of particular goods
Typically are imposed on “luxury” items, and on goods that the government wants to discourage the use of (examples: alcohol, tobacco)

6. Import Taxes Also known as tariffs
Taxes placed on goods that are manufactured in foreign countries;
Paid when the goods enter the country
Historically, excise taxes and tariffs accounted for the majority of federal government revenue

7. Sales Taxes Flat tax on the sale of all goods (and sometimes services)
Enacted by most of the states;
There is no federal sales tax

8. Taxes on Income

9. Personal Income Tax
Tax paid by individuals; percentage of total income (minus deductions, exemptions, credits)
Current top tax rate is 39.6%
This is historically low; during the Eisenhower administration the top rate was 90%
Investment Income (aka, Capital Gains) is taxed at a different (generally lower) rate than income from work
Currently 15% for the highest tax bracket

10. Corporate Income Tax Tax on corporate profits
The official corporate tax rate in the U.S. was relatively high (3rd highest in the world)
But—the corporate tax code, even more than the personal income tax code, is full of loopholes
Can you guess why?
The 2017 Tax Reform Act changed the first point, but not the second
Can you guess why
Biggest change in the 2017 law: The base corporate tax rate was reduced from 35% to 21%

11. Gift Taxes and Estate Tax
“Gifts”—Transfer of assets from one person/entity to another without consideration
Income from gambling is also considered “gift” income
Estate tax—Tax on large inheritances (aka, the “death tax”)
Applies to estates of $5.4 million or more (0.2% of all inheritances)

12. Impact of Taxation

13. How much should people pay?
Progressive Tax: People with higher incomes pay a higher tax rate
U.S. Income Tax
Estate Tax
Flat Tax (Proportional Tax): Everyone pays the same tax rate
A popular proposal among conservative politicians is to convert the U.S. income tax to a flat tax, while at the same time eliminating many loopholes and exemptions
Regressive Tax: People with lower incomes pay a higher tax rate
Sales tax are functionally regressive
Excises taxes may be as well
The overall effective income tax rate may actually be somewhat regressive, when the lower rate for investment income is incorporated

14. The 2017 tax bill: ignatius vs. von drehle
Class Reading and Seminar Discussion

15. Homework
Textbook, Chapter 16: Reading and Outline due Tomorrow