Micro Chapter 7

What is the income tax?

a tax that depends on the income of an individual or a family from wages and investments

What is a property tax?

a tax that depends on the value of property, such as the value of a home

What is the sales tax?

a tax that depends on the value of goods sold (also known as an excise tax)

What is a lump-sum tax?

A lump-sum tax is the same for everyone, regardless of any actions people take.

What is a progressive tax?

A progressive tax takes a larger share of the income of high- income taxpayers than of low-income taxpayers.

What is a regressive tax?

A regressive tax takes a smaller share of the income of high- income taxpayers than of low-income taxpayers.

What effect does a tax have on consumer and producer surplus?

A tax reduces both the consumer surplus and the producer surplus.

What does the laffer curve say?

According to Laffer's diagram, raising tax rates initially increases revenue, but beyond a certain level revenue falls instead as tax rates continue to rise.

What is the ability-to-pay principle of tax fairness?

According to the ability-to-pay principle of tax fairness, those with greater ability to pay a tax should pay more tax.

What is the benefits principle of tax fairness?

According to the benefits principle of tax fairness, those who benefit from public spending should bear the burden of the tax that pays for that spending.q

What is an excise tax?

An excise tax is a tax on sales of a good or service.

What determines the incidence of an excise tax?

Elasticity

What is income tax?

Income tax accounts for about half of all federal revenue. The structure of the income tax reflects the ability-to-pay principle: families with low incomes pay little or no income tax. In fact, some families pay negative income tax. (Earned income tax credit program)

What does the US tax ppl more on, money they make, or money they spend? What does this encourage?

The US taxes ppl more on money they make instead of money they spend. It encourages spending instead of saving.

What are the administrative costs of a tax?

The administrative costs of a tax are the resources used by government to collect the tax, and by taxpayers to pay it, over and above the amount of the tax, as well as to evade it.

What is the deadweight loss caused by a tax equal to?

The deadweight loss caused by the tax represents the total surplus lost to society because of the tax—that is, the amount of surplus that would have been generated by transactions that now do not take place because of the tax.

What is the incidence of a tax?

The incidence of a tax is a measure of who really pays it.

What is the marginal tax rate?

The marginal tax rate is the percentage of an increase in income that is taxed away.

How do you determine the revenue collected by an excise tax?

The revenue collected by an excise tax is equal to the area of the rectangle whose height is the tax wedge between the supply and demand curves and whose width is the quantity transacted under the tax.

What is the proportional tax?

The simplest tax structure is a proportional tax, also sometimes called a flat tax, which is the same percentage of the base regardless of the taxpayer's income or wealth.

What is a tax base?

The tax base is the measure or value, such as income or property value, that determines how much tax an individual or firm pays.

What is the tax structure?

The tax structure specifies how the tax depends on the tax base.

What is the top marginal income tax rate?

The top marginal income tax rate is often viewed as a useful indicator of the progressivity of the tax system — it shows just how high a tax rate the U.S. government is willing to impose on the very affluent.

What is the total inefficiency caused by a tax equal to?

The total inefficiency caused by a tax is the sum of its deadweight loss and its administrative costs. The general rule for economic policy is that, other things equal, a tax system should be designed to minimize the total inefficiency it imposes on society.

What does the wedge created btwn demand price and supply price become?

The wedge between the demand price and supply price becomes the government's tax revenue.

Why do state and local governments not apply the ability-to-pay principle?

This is largely because they are subject to tax competition: a state or local government that imposes high taxes on people with high incomes faces the prospect that those people may move to other locations where taxes are lower.

What is the payroll tax?

a tax that depends on the earnings an employer pays to an employee

How does one minimize the efficiency costs of taxation?

To minimize the efficiency costs of taxation, one should choose to tax only those goods for which demand or supply, or both, is relatively inelastic; For such goods, a tax has little effect on behavior because behavior is relatively unresponsive to changes in the price.

When does an excise tax fall mainly on producers?

When the price elasticity of demand is higher than the price elasticity of supply, an excise tax falls mainly on producers.

When does an excise tax fall mainly on consumers?

When the price elasticity of supply is higher than the price elasticity of demand, an excise tax falls mainly on consumers.

What is a profits tax?

a tax that depends on a firm's profits

What is wealth tax?

a tax that depends on an individual's