Econ - Ch. 9 Vocab

sin tax

relatively high tax designed to raise revenue and discourage consumption of a socially undesirable product

incidence of a tax

final burden of a tax

tax loophole

exception or oversight in the tax law allowing taxpayer to avoid taxes

individual income tax

tax levied on wages, salaries, and other income of individuals

sales tax

general state or city tax levied on a product at the time of sale

benefit principle of taxation

belief that taxes should be paid according to benefits received regardless of income

ability-to-pay principle of taxation

belief that taxes should be paid according to level of income regardless of benefits received

proportional tax

tax in which percentage of income paid in tax is the same regardless of the level of income

average tax rate

total taxes paid divided by the total taxable income

progressive tax

tax where the percentage of income paid in tax rises as level of income rises

marginal tax rate

tax rate that applies to the next dollar of taxable income

regressive tax

tax where percentage of income paid in tax goes down as income rises

payroll withholding system

system that automatically deducts income taxes from paychecks on a regular basis

Internal Revenus Service (IRS)

branch of Treasury Department that collects taxes

tax return

annual report filed with local, state, or federal government detailing income earned and taxes owed

indexing

adjustment of tax brackets to offset the effects of inflation

FICA

Federal Insurance Contributions Act; tax levied on employers and employees to support Social Security and medicare

medicare

federal health-care program for senior citizens, regardless of income

payroll tax

tax on wages and salaries to finance Social Security and medicare costs

corporate income tax

tax on corporate profits

excise tax

general revenue tax levied on the manufacture or sale of selected items

luxury good

good for which demand increases faster than income when income rises

estate tax

tax on the transfer or property when a person dies

gift tax

tax on donations of money or wealth that is paid by the donor

customs duty

tax on imported products

user fees

fees paid for the use of good or service; form of a benefit tax

accelerated depreciation

schedule that spreads depreciation over fewer years than normal to generate larger tax reductions

investment tax credit

tax credit given for purchase of equipment

surcharge

additional tax or charge added to other charges already in place

alternative minimum tax

personal income tax rate that applies to cases where taxes would otherwise fall below a certain level

capital gains

profits from the sale of an asset held for 12 months

value-added tax (VAT)

tax on the value added at every stage of the production process

flat tax

proportional tax on individual income after a specified threshold has been reached