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tax
a mandatory payment to a local, state, or national government
revenue
government income from taxes and nontax sources
tax base
each type of wealth that is subject to taxes
four most common tax bases
individual income, corporate income, sales, property
individual income tax
a tax based on an individual’s income from all sources: wages, interest, dividends, and tips
taxable income
the amount of income that is actually subject to the tax
marginal tax rate
the tax rate that would apply to an additional $1 of taxable income earned
sales tax
a tax based on the value of designated goods or services at the time of sale
property tax
taxes imposed on assets
corporate income tax
a tax on corporate profits
incidence of a tax
the final burden of that tax
why do governments impose taxes
to pay for the costs of governments, to redistribute wealth, to allocate resources, to promote certain industries, to influence productivity and growth, to change economic behavior
tariff
a tax on goods entering the country from a foreign country
protective tariff
when its major purpose is to raise the cost of import
sin taxes
often imposed on products or activities considered to be unhealthful or damaging to society, such as gambling, alcohol, and cigarettes.
ingredients of a good tax system
equity/fairness, clarity and certainty, simplicity and efficiency, flexibility
benefits received principle
holds that people who benefit directly from public goods should pay for them in proportion to the amount of benefits received
ability-to-pay principle
holds that people should be taxed in accordance with their ability to pay
proportional tax
sometimes called a flat tax, because the rate of tax is the same for all taxpayers
progressive tax
one in which the tax rate also increases as a person’s income increases
regressive tax
the percentage of income paid in taxes decreases as income increases
