Economics: Chapter 9 Section 1-2

Most important sources of government revenue:

1) Individual Income Tax 2) Social Security Tax 3) Borrowing 4) Corporate Income Tax 5) Excise Tax

Total Federal Revenue:

3.18 Trillion

Total Federal Spending:

3.9 Trillion

Pay Withholding System

A system that requires an employer to deduct income taxes from an employee's paycheck and send it directly to the IRS.

What is a sin tax and what is it usually applied to?

A tax on items considered undesirable or harmful. Alcohol and tobacco.

Regressive Tax

A tax whose rate increases as the payer's income decreases.

Progressive Tax

A tax whose rate increases as the payer's income increases.

Proportional Tax

A tax whose rate is the same regardless of income.

What situation must exist to make it easier for a producer to shift the incidence of a tax to the consumer?

The demand curve has to be inelastic.

Discretionary

Can be changed at your discretion. Ex. Science, Interest on Debt, Veterans Benefits, Food and Agriculture, Government, Internation Affairs, Education, Housing and Community, Transportation, and Energy and Environment.

What two factors is the ability-to-pay principle based on?

Cannot always measure the benefits derived from government spending and it assumes that people with higher income suffer less discomfort paying taxes than people with lower incomes.

Nondicretionary

Cannot be changed. Have to be paid. Ex. Military, Medicare and Health, and Social Security, Unemployment, and Labor.

Tax season deadline:

December 31st

What are two criteria for making a tax efficient?

Easy to administer and successful at generating revenue.

Three criteria for effective taxes:

Equity, simplicity, and efficiency.

The federal government also receives other revenues from:

Excise tax, estate gift taxes, custom duties, and miscellaneous fees.

Medicare

Federal health-care program for senior citizens.

Sales Tax

General state or city tax on a product.

What effect might taxes have on productivity and economic growth?

It might reduce them by changing the incentives to save, invest, and work.

Individual Income Tax

Main source of federal government revenue.

What three general types of taxes exist in the United State?

Proportional, regressive, progressive.

Corporate Income Tax

Tax a corporation pays on its profits.

Excise Tax

Tax on the manufacture or sale of selected items.

What is a marginal tax rate?

Tax rate that applies to the next dollar of taxable income.

What criteria is generally recognized as making taxes fairer?

Taxes should be impartial and just.

What is the benefit principle of taxation?

Taxes should be paid according to benefits received regardless of income.

What is the ability-to-pay principle?

Taxes should be paid according to level of income regardless of benefits received.

FICA

The Federal Insurance Contributions Act tax levied on employers and employees to pay for Social Security and Medicare.

Borrowing

The third-largest source of federal revenue.

What can happen to the factors of production when prices go up as an end result of taxation?

They will have to go to other industries to be employed.

What makes taxes more tolerable to many people?

When they understand them.

Tax Return

Yearly report by a taxpayer detailing income earned and taxes owed.