Class Notes 032408 Federal Income Tax Policy

Class Notes 032408 Federal Income Tax Policy - Mar. 24,...

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Mar. 24, 2008 Federal Income Tax Policy o Income tax is dominant form of tax at federal level. (Especially if we think of Social Security/Medicare taxes – FICA – as a “contribution” – which you will.) o Income tax in U.S. is very progressive – tax rate rises with income. o U.S. income tax is often criticized as too complicated – most complications are about tax preferences that voters like. o Start today by focusing on three main issues in taxations: Tax bases and tax rates Criteria for choosing progressivity Intro to U.S. system. Tax Bases/Tax Rates o Two dimensions to any tax system: 1.) How progressive is bracket/rate structure? 2.) What is the basis for taxation? (Usually in terms of consumptions in income) Progressivity o Usual public economics argument is about trade off between equity and efficiency. o High marginal tax rates lower efficiency – most productive people are being taxed. o
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Class Notes 032408 Federal Income Tax Policy - Mar. 24,...

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