ch18_taxation_us - Chapter 18- Taxation in the United...

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Chapter 18- Taxation in the United States Types of Taxation ●taxes on earnings payroll tax - tax levied on income earned on one’s job payroll taxes used to finance social insurance programs (SS, Medicare…) ●taxes on individual income individual income tax - tax paid on individual income accrued during the year how is individual income tax different than payroll tax? a) applies to broader set of income sources (earnings + interest earnings…) b) applies in many cases to entire family income capital gains tax - tax on earnings from selling capital assets (stocks, houses…) (CH 23) ●taxes on corporate income corporate income tax - tax levied on the earnings of corporations ●taxes on wealth wealth taxes - taxes paid on the value of the assets (real estate, stocks…) property taxes - a form of wealth tax based on the value of real estate, including the value of the land an any structures built on the land estate taxes - a form of wealth tax based on the value of the estate left behind when one dies ●taxes of consumption consumption tax - a tax paid on individual or household consumption of goods sales taxes - taxes paid by consumers to vendors at the point of sale excise tax - a tax paid on the sales of particular goods, such as cigarettes or gasoline direct taxes - directly tax individual resources (payroll, income, wealth taxes) indirect taxes - tax the use of resources instead of the resources themselves (consumption tax) Figure 18.1 and Figure 18.2 individual income tax revenue as a % of total gov revenue higher in US than OECD average consumption tax revenue as a % of total gov revenue lower in US than OECD average Tax Revenue from the Major Federal Taxes % of GDP (2005) % of Federal Revenue (2005) Household income taxes 7.5% 43% Payroll taxes 6.5 37 Corporate income taxes 2.3 13 Excise taxes 0.6 3 Estate and gift taxes 0.2 1 Customs duties (tariffs) 0.2 1 Other revenues 0.3 2 Total 17.5% 100%
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Structure of the Individual Tax in the United States Table 18.1 (computing income tax payment) #1) compute gross income #2) subtract deductions to determine adjusted gross income (AGI) #3) subtract exemptions #4) subtract itemized or standard deduction to determine taxable income #5) use tax schedule to determine taxes owed #6) subtract tax credits to determine total tax payment gross income - total of an individual’s various sources of income (wages and salaries, capital income (interest, dividends, rental income), other business income) adjusted gross income - an individual’s gross income minus certain deductions deductible items (2004): •contributions to Individual Retirement Accounts (IRAs) or self-employed pension plans •alimony •health insurance premiums paid by the self-employed •one-half the payroll taxes paid by the self-employed 2
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exemption - a fixed amount a taxpayer can subtract from her AGI for each dependent member of her household, as well as herself and her spouse 2006- $3,300 per person standard deduction
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ch18_taxation_us - Chapter 18- Taxation in the United...

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