2. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Public Choice Theory and the Economics of Taxation

3. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Majority Voting Fails to take into account the strength of the preferences of individual voters. PUBLIC CHOICE THEORY

4. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Majority Voting: Inefficient Voting Outcomes COMPARE $300 TAX TO PERSONAL BENEFIT OF A PUBLIC GOOD Adams - BENEFIT $700 - "YES" Benson - BENEFIT $250 - "NO" Conrad - BENEFIT $200 - "NO" PUBLIC CHOICE THEORY The “No” Votes Win but, the decision is inefficient…

5. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Benefit; Tax $700 $250 $200 $300 (YES) (NO) An Inefficient “NO” Vote Adams Benson Conrad The NO vote wins but is inefficient since... PUBLIC CHOICE THEORY

6. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Benefit; Tax $700 $250 $200 $300 (YES) (NO) An Inefficient “NO” Vote Adams Benson Conrad The NO vote wins but is inefficient since... MSB $1,150 > MSC $900 PUBLIC CHOICE THEORY

7. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure U.S. Tax Structure

8. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure TAX STRUCTURES Who pays the tax? Benefits-Received Principle Ability-to-Pay Principle Tax as a percentage of income: Progressive Tax Regressive Tax Proportional Tax

9. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure TAX APPLICATIONS: Personal Income Tax Progressive Sales Tax Regressive Corporate Income Tax Proportional Payroll Taxes Regressive Property Taxes Regressive Estate & Gift Taxes Progressive Identify whether progressive, regressive, or proportional

10. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure HIGHEST TAX BRACKETS BY DECADE

11. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Revisiting the role of elasticity (E D & E S ) More elastic curves create more DWL More inelastic curve pays more of the tax Why tax if it creates DWL? Redistributive Goals Reducing Negative Externalities TAX INCIDENCE AND EFFICIENCY LOSS

12. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Tax Distortions and Elasticities Demand Supply Inelastic Demand Price 0 Quantity Size of tax

13. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Federal Tax System Progressive State and Local Tax Largely Regressive Overall U. S. Tax System Progressive TAX PROGRESSIVITY IN AMERICA THE U.S. TAX STRUCTURE

14. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure How Much Tax do the Rich Pay?

15. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure

16. Public Choice Theory Apportioning the Tax Burden Tax Applications Tax Incidence and Efficiency Loss The U.S. Tax Structure Taxes and Government Spending