ECON CHAPTER 19-23

if women are not allowed to vote or inherit wealth but men are, this is an example of

an inequality trap

tax revenue formula

average tax rate x tax base

an annual income of less than $29,000 is

below the poverty threshold

vertical equity can be determined by comparing the

effective tax rate of the taxpayer with the highest nominal income to the effective tax rates of taxpayers with lower nominal incomes

When compared to those in poor countries, poor people in the US receive

far more goods and services

in-kind income

goods and services received directly (not via a market transaction)

if Luis makes $50,000 per year as a computer programmer and pays $6,000 in taxes while Hector makes $50,000 per year as a roofing contractor and pays $7,000 in taxes, this is an example of

horizontal inequity

progressive

imposes higher tax rates on high income than on low incomes

severe poverty

income of less than $2 per person. Nearly 2.4 billion of the 7 billion people worldwide

extreme poverty

income of less then $1.25 per day per person. over 1 billion of the 7 billion people worldwide

the official poverty threshold in the united states is an annual income of

less than three times the cost of a "minimally adequate" diet

the granting of small, unsecured loans to small businesses and entrepreneurs is known an

microfinance

When the census bureau counts the number of poor Americans, it counts

only money income

horizontal equity

people with equal incomes should pay equal taxes

vertical equity

people with higher incomes should pay more taxes than people with lower incomes

if the percentage of income paid in taxes increases as income rises, then the tax system is

progressive

two general approaches to global poverty reduction

redistribution of incomes and economic growth

nominal tax rates

taxes paid divided by taxable income

effective tax rate

taxes paid divided by total income

wealth

tends to be distributed less equally than income

personal income

the amount earned and received by households before taxes are paid

gini coefficient

the area under the diagonal of the Lorenz curve

the higher the Gini coefficient

the greater the inequality of income

wealth

the market value of assets owned at a point in time

proportional

the percentage of income going to taxes is the same no matter what the income

social security payroll tax

the second-largest source of federal tax revenue

sales and property taxes are regressive because

the tax rate falls as incomes rises

marginal tax rate

the tax rate imposed on the last (marginal) dollar of income--increases as incomes rise

tax incidence

where the real burden of a tax falls

flat tax

-a single-rate tax system -replaces the current system of multiple tax brackets -eliminates all deductions, tax credits, and most exemptions (loopholes)

sales tax incidence

-at lower incomes, earners spend all of their income, which is subject to sales tax -at higher incomes, earner do not pay sales tax on income not spent, but saved

property tax incidence

-income going to housing is higher for low-income earners, who primarily rent rather than own -property tax is reflected in higher rents

the benefits of a flat tax include

-simplicity -only one tax bracket -no deductions or exemptions

equity

a more equal distribution

wealth

a stock of potential purchasing power