Topic 8

Progressive Tax

Percentage of income paid in taxes increases as income increases (Federal Income Tax)

Proportional Tax

Percentage of income paid in taxes remains same at all income levels

Regressive Tax

Percentage of income paid in taxes decreases as income increases. (Sales Tax)

Sales Tax

Based on goods/services sold

Tax Bases

Income, property, good, or service subject to a tax

Individual Income Tax

Based on person’s earnings

Corporate Income Tax

Based on company’s profits

Property Tax

Based on real estate and other property

Incidence of a Tax

Final burden of a tax. More inelastic demand = more burden on consumer

Characteristics of Tax

Simplicity, Efficiency, Equity

Benefits-received Principle

People should pay taxes based on the level of benefits expected to receive from government

Ability-to-Pay Principle

People pay taxes according to their ability to pay (Progressive Tax)

Direct Tax

Tax collected directly from person/entity paying (Individual Income Tax)

Individual Tax Bracket

Progressive, increase equity but decrease incentive to work

Withholding

Taking tax payments out of employee pay before they receive it

Tax Return

Form used to file income taxes

Taxable Income

Earning on which tax must be paid; total income minus exemptions and deductions

Tax Deductions

Variable amount that taxpayers may subtract from their gross income

Tax Credit

Variable amount that taxpayers may subtract

Corporate Tax Income

Progressive, directly impacts levels of employment

Social Security

Funds old age, survivors, and disability insurance, income cap for social security tax

Medicare Taxes

National health insurance program that helps pay for healthcare for people over 65 or with disabilities, no ceiling, paid by employees and self employed

Unemployment Tax

Paid by employers, pays for insurance policy for workers

Excise Tax

General revenue tax on sale/manufacture of a good

Indirect Tax

Collected by person/business other than the one who pays it

Estate Tax

Tax on the total value of money and property of a person who has died.

Gift Tax

Money/property that one living person gives to another

Tariffs

Tax on imported goods

Tax incentive

Taxation to encourage/discourage certain types of behavior

Mandatory Spending

Spending that congress is required by existing law to do (Social Security, Medicare, etc)

Discretionary Spending

Spending where congress is free to make decisions (Defense and Education)

Entitlements

Social Welfare programs that people are “entitled to” benefit from if they meet certain eligibility requirements

Operating Budget

Budget for day-to-day spending needs

Capital Budget

Budget spending on major investments

Balanced Budget

Revenue and spending are equal, required by 48 states, only applies to operating budget

State spending categories

Education, public safety, transportation, health/welfare, arts, administration

Tax exempt

Not subject to taxes (nonprofit, religious groups)

Funding for State Gov

Sales/Excise Taxes, Individual Income Tax, Corporate Income Tax, Other state tax (property taxes)

Real Property/Estate

Land and any permanent structures on the land to which a person has legal title

Personal Property

Movable possessions or assets (jewelry, furniture, boats)

Funding for local gov

property tax

Tax assesor

Official who determines value of property to see how much they should be taxed