Exam 1: Section 4: Governmental Financing Process - Learning Objectives

Elements of Tax Policy (S3.A1)

What to Tax

Who to Tax

How Much to Tax

Why to Tax

What to Tax

Collection efficiency: cost to collect should be minimal compared to revenue received

Who to Tax

Benefit received: who benefits from tax

How Much to Tax

Tax equity: Vertical equity, horizontal equity

Ability to pay: Progressive vs regressive rates

Why to Tax

Social and economic goals: encourage specific behavior or relieve tax burdens on payers

Progressive Tax vs. Regressive Tax (S3.A2)

Tax Rate Behavior

Who Bears the Burden

Equity Principle

Examples

Tax Rate Behavior

Progressive: Rises as income rises

Regressive: Falls as income rises

Who Bears the Burden

Progressive: Higher-income earners

Regressive: Lower-income earners

Equity Principle

Progressive: Vertical equity

Regressive: Opposite of vertical equity (lower-income pay higher percentage than wealthy)

Examples

Progressive: Federal income tax, Equity tax

Regressive: Sales tax, Excise tax, Payroll tax

Income Tax (S3.A2)

Type of Tax

Advantages

Level of Government

Tax Payer

Type of Tax: Progressive (higher income level = higher tax bracket/rate)

Advantages

Less costly to administer

High compliance level

Responds to economy

Levels of Government:

Major revenue source for national/state

State/local use federal income tax rate as a starting point for determining tax liabilities

Tax Payer: Individuals, Corporations

Wealth Tax - Real Property Tax (S3.A2)

Open

Consumption Tax (S3.A2)

Open

Wealth Tax - Personal Property Tax (S3.A2)

Wealth Tax - Intangibles Tax (S3.A2)

Wealth Tax - Estate and Inheritance Tax (S3.A2)