Chapter 1-8 Economics: Taxation Flashcards

Flashcards covering key taxation concepts, formulas, tax system structures, and economic behaviors discussed in the lecture.

What are the three main sources from which the government receives its money?

User fees for government services, taxes, and borrowing money.

How is the tax base defined?

All goods, services, wealth, or income subject to taxation.

What is the formula for calculating the marginal tax rate?

$$\text{Marginal Tax Rate} = \frac{\text{Change in Tax Payment}}{\text{Change in Income}}$$

What is the formula for calculating the average tax rate?

$$\text{Average Tax Rate} = \frac{\text{Total Tax Payment}}{\text{Total Income}}$$

What is a proportional tax system?

A tax system in which, regardless of the individual's income, the tax comprises exactly the same portion or rate.

What is the relationship between the marginal tax rate and the average tax rate in a proportional tax system?

The marginal tax rate and the average tax rate are equal to one another.

What is a progressive tax system?

A tax system in which as income increases, a higher percentage of additional income is paid as a tax.

How does the marginal tax rate compare to the average tax rate in a progressive tax system?

The marginal tax rate is always higher than the average tax rate.

What is a regressive tax system?

A tax system in which as more dollars of income are received, the percentage of tax paid on them falls.

How does the marginal tax rate compare to the average tax rate in a regressive tax system?

The marginal tax rate is always less than the average tax rate.

Which tax is specifically identified in the lecture as an example of a regressive tax?

Social Security tax.

Above what income threshold do individuals stop paying Social Security tax, dropping their tax rate for it to zero?

$$\$133,000$$

What percentage of total government revenue is accounted for by the federal personal income tax?

$$47\%$$

According to the transcript, which group of households benefits from the child tax credit?

Households headed by Hispanic individuals.

According to the transcript, which households benefit from the earned income tax credit?

Households headed by both Hispanic and Black individuals.

What is a capital gain?

The positive difference between what you pay for an item or asset and what you sell it for.

What percentage of government revenue is accounted for by the corporate income tax?

$$13\%$$

What is double taxation in the context of corporate income?

The corporate earnings are taxed first at the corporate level and then taxed a second time as income when distributed to stockholders as dividends.

What are retained earnings?

Earnings that a corporation saves or retains for investment in productive activity rather than distributing to stockholders as dividends.

What is tax incidence?

The distribution of the tax burden among the various groups in society.

According to the lecture, who ultimately bears the tax burden imposed on a corporation?

All of the groups involved: consumers, employees (workers), and shareholders.

What percentage of an employee's salary is directly withheld for Social Security tax?

$$6.2\%$$

What is the key difference between static tax analysis and dynamic tax analysis?

Static analysis assumes tax rate changes do not alter behavior, while dynamic tax analysis recognizes that as tax rates increase, people look for ways to avoid the tax.

How does market elasticity (competition) influence who pays a newly imposed tax?

If there is high competition (elastic demand), the business is more likely to absorb the tax; if there is low competition (inelastic demand), the business passes the tax onto consumers.

In the progressive tax example with three $10,000 brackets at 5%, 10%, and 30%, what is the total tax owed on an income of $30,000?

$\$4,500$ (calculated as $\$500 + \$1,000 + \$3,000$)