Understanding Taxes

EQ: What are the characteristics of The Federal Tax System?

Definitions:

IRS - Internal Revenue Service; gov’t org responsible for collecting taxes

Taxes -

Revenue - from Congress (Article 1 of Constitution); income received by a gov’t from taxes + other nontax sources; provides public goods (roads, schools, law enforcement, etc.)

Progressive Tax - as income increases, the % of income tax increases

Proportional Tax (Flat Tax) - % of income tax stays the same at all income levels

Regressive Tax - as income increases, the % of income tax decreases (sales tax, excise tax/sin tax)

Sales Tax -

Tax Base - the population

Notes:

• 16th Amendment - legalized income taxes

• Congress - cannot tax religious services/facilities, voting (poll tax), exports

• Characteristics of Taxes

  • Simplicity - easy to understand, predictable schedule

  • Efficiency - able to pay/collect w/o giving up a lot of time or fees

  • Certainty - clear due dates, clear payment method

  • Equity - tax system should be fair; no one has too little or too many taxes