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Info to study from chapter 1 of the Federal Income Taxes I class
tax rate
level of taxes imposed on the tax based; expressed usually as a percentage (%)
tax base
defines what’s actually taxed; expressed usually in monetary terms ($)
marginal tax rate
applies to the next addition increment of a taxpayer’s taxable income
average tax rate
taxpayer’s average level of taxation on each dollar of taxable income
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
proportional (flat) tax rate structure
imposes a constant tax rate throughout the tax base (e.g., Federal corporate tax income, sales tax)
progressive tax rate structure
imposes an increasing marginal tax rate as the tax base increases (e.g., federal income taxes)
static forecasting
ignores how taxpayers might alter activities in response to a tax law change; bases projected tax revenues on existing state of transactions
dynamic forecasting
tries to predict possible responses by taxpayers to new tax laws
income effect
if tax rates go up, people will work harder
substitution effect
if tax rates go up, people substitute nontaxable activities
horizontal equity
taxpayers in similar situations pay the same tax
vertical equity
taxpayers able to pay more tax pay more tax
earmarked tax
tax that’s assessed for a specific purpose
graduated tax
base is divided into a series of monetary amounts, or brackets, and each is taxed at a different rate
excise tax
based on quantity sold of particular products
real property
buildings and land
personal property
cars and boats
implicit tax
the reduced before tax return that a tax-favored asset produces because of its tax-advantaged status
sufficiency
assesses the aggregate size of the tax revenues that must be generated and making sure the tax system provides those revenues
equity
how the tax burden should be distributed across taxpayers
certainty
taxpayers should be able to determine when to pay the tax, how to determine the tax, and where to pay the tax
convenience
the system should be designed to be collected without undue hardship to the taxpayer
economy
should minimize compliance and administration costs associated with the system
tax formula
tax = tax rate × tax base
choices influenced by taxes
investments, evaluating alternative job offers, saving for education expenses, performing gift or estate planning
estate (death) tax
tax paid for an estate
commonly assessed by state/local governments
sales tax
income tax
property tax
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
regressive tax rate structure
imposes a decreasing marginal tax rate as the tax base increases (e.g., Social Security tax, federal/state unemployment taxes)
