Federal Income Taxes I - Chapter 1

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tax rate

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level of taxes imposed on the tax based; expressed usually as a percentage (%)

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tax base

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defines what’s actually taxed; expressed usually in monetary terms ($)

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Info to study from chapter 1 of the Federal Income Taxes I class

30 Terms

1

tax rate

level of taxes imposed on the tax based; expressed usually as a percentage (%)

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2

tax base

defines what’s actually taxed; expressed usually in monetary terms ($)

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3

marginal tax rate

applies to the next addition increment of a taxpayer’s taxable income

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4

average tax rate

taxpayer’s average level of taxation on each dollar of taxable income

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5

effective tax rate

taxpayer’s average rate of taxation on each dollar of total income (both taxable and nontaxable); provides a better depiction of a taxpayer’s burden than the average tax rate

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6

proportional (flat) tax rate structure

imposes a constant tax rate throughout the tax base (e.g., Federal corporate tax income, sales tax)

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7

progressive tax rate structure

imposes an increasing marginal tax rate as the tax base increases (e.g., federal income taxes)

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8

static forecasting

ignores how taxpayers might alter activities in response to a tax law change; bases projected tax revenues on existing state of transactions

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9

dynamic forecasting

tries to predict possible responses by taxpayers to new tax laws

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10

income effect

if tax rates go up, people will work harder

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11

substitution effect

if tax rates go up, people substitute nontaxable activities

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12

horizontal equity

taxpayers in similar situations pay the same tax

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13

vertical equity

taxpayers able to pay more tax pay more tax

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14

earmarked tax

tax that’s assessed for a specific purpose

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15

graduated tax

base is divided into a series of monetary amounts, or brackets, and each is taxed at a different rate

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16

excise tax

based on quantity sold of particular products

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17

real property

buildings and land

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18

personal property

cars and boats

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19

implicit tax

the reduced before tax return that a tax-favored asset produces because of its tax-advantaged status

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20

sufficiency

assesses the aggregate size of the tax revenues that must be generated and making sure the tax system provides those revenues

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21

equity

how the tax burden should be distributed across taxpayers

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22

certainty

taxpayers should be able to determine when to pay the tax, how to determine the tax, and where to pay the tax

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23

convenience

the system should be designed to be collected without undue hardship to the taxpayer

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24

economy

should minimize compliance and administration costs associated with the system

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25

tax formula

tax = tax rate × tax base

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26

choices influenced by taxes

investments, evaluating alternative job offers, saving for education expenses, performing gift or estate planning

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27

estate (death) tax

tax paid for an estate

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28

commonly assessed by state/local governments

  • sales tax

  • income tax

  • property tax

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29

use tax

a tax imposed on the retail price of goods owned, possessed, or consumed within a state that were not purchased within the state

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30

regressive tax rate structure

imposes a decreasing marginal tax rate as the tax base increases (e.g., Social Security tax, federal/state unemployment taxes)

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