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prob_set_05 - University of California Davis Department of...

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University of California, Davis Department of Economics ECONOMICS 131 Spring 2008 L. Jay Helms Problem Set #5: The Structure of the Individual Income Tax 1. The Treatment of Charitable Contributions a. (10) Explain the difference between a tax credit and a deduction for a taxpayer who itemizes deductions and pays a substantial amount of tax. b. (5) Using the principle of vertical equity , provide an argument for allowing a credit (rather than a deduction) for charitable contributions. Explain. c. (5) Define Haig-Simons income. d. (5) Using the principle of horizontal equity with respect to Haig-Simons income, provide an argument for allowing a deduction (rather than a credit) for charitable contributions. Explain. e. (5) Using the principle of horizontal equity with respect to Haig-Simons income, provide an argument against allowing any tax break (either a deduction or a credit) for charitable contributions. Explain. 2. Capital Gains and the Haig-Simons Definition
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