Chapter 9: Sources of Government Revenue

These flashcards cover key vocabulary and concepts related to sources of government revenue as outlined in Chapter 9.

Sin Tax

A relatively high tax designed to raise revenue and reduce consumption of socially undesirable products such as liquor or tobacco.

Tax Loopholes

Exceptions or oversights in the tax law that allow some people and businesses to avoid paying taxes.

Individual Income Tax

The tax on people’s earnings, an example of a complex tax.

Sales Tax

A general tax levied on most consumer purchases, paid at the time of purchase, computed and collected by the merchant.

Benefit Principle of Taxation

The idea that those who benefit from government goods and services should pay in proportion to the benefits they receive.

Ability to Pay Principle of Taxation

The belief that people should be taxed according to their ability to pay, regardless of benefits received.

Tax Return

An annual report to the IRS summarizing total income, deductions, and the taxes withheld by employers.

Excise Tax

A tax on the manufacture or sale of selected items, such as gasoline and liquor; it is the fourth largest source of federal government revenue.

Estate/Death Tax

The tax levied by the government on the transfer of property when a person dies.

Gift Tax

A tax on gifts of money or property, paid by the person making the gift.

Customs Duty

A charge levied on goods brought in from other countries.

User Fees

Charges for the use of a good or service proposed with increasing frequency.

Property Tax

A tax on tangible and intangible assets such as land, buildings, furniture, cars, livestock, shares, bonds, and bank accounts.

Alternative Minimum Tax

The personal income tax rate that applies when the amount of tax paid falls below a certain level, which has been increased.

Capital Gains Tax

Tax on gains and profits from the sale of an asset held for at least 12 months, reduced from 28% to 20%.

Value Added Tax (VAT)

A tax levied on the value added by manufacturers at each stage of production.

Progressive Tax

A tax that imposes a higher percentage rate of taxation on persons with higher incomes.

Regressive Tax

A tax that imposes a higher percentage rate of taxation on low incomes than on high incomes.

Proportional Tax

A tax that imposes the same percentage rate of taxation on everyone, regardless of income.

Internal Revenue Service (IRS)

The agency that receives tax payments.

Payroll Withholding System

A system that requires employers to automatically deduct income taxes from employees’ paychecks and send them directly to the government.