TAX OUTLINE-MIDTERM #1 - Chapter 1 Introduction and Tax Law...

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Chapter 1: Introduction and Tax Law I. The History of U.S. Taxation - Revenue Acts -Historical Trends -Early periods II. Criteria Used in the Selection of a Tax Structure - Adam Smith identified these canons of taxation when evaluating a tax structure. - Equality: fair and equitable treatment when paying taxes in proportion to his or her income level. - Convenience: Simplicity is desired when formulating tax policy. Pay-as-you go system is convenient for tax payers. - Certainty: Tax payer should be able to predict when, where, and how tax should be taken. They need to know the consequences. - Economy: Nominal collection costs by the government and minimal compliance costs on the taxpayer. However, our current tax structure is rather complex, which imposes substantial taxpayer costs. III. The Tax Structure (1-5) 1. Tax Base - the amount to which the tax rate is applied. This tax base is considered taxable income. 2. Tax Rates - These rates are applied to the tax base to determine the taxpayer’s liability. These rates can be either proportional or progressive. a. Progressive VS. Proportional b. Proportional =constant rate across all income levels. c. Progressive =rate increases as the tax base increases. Ex.) federal income tax, federal gift, estate taxes, and most state income tax rates. IV. Major Types of Taxes 1. Property Taxes- bases on value, property taxes are a tax on wealth, orcapital.
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