chapter12micro - T H E D E S I G N O F T H E T A X S Y S T...

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Unformatted text preview: T H E D E S I G N O F T H E T A X S Y S T E M Taxes are inevitable because we as citizens expect the government to provide us with various goods and services. When the government remedies an externality (such as air pollution), provides a public good (such as national defense), or regulates the use of a common resource (such as fish in a public lake), it can raise economic well-being. Yet the benefits of government come with costs. A FINANCIAL OVERVIEW OF THE U.S. GOVERNMENT Figure 12-1 shows that, over time, the government has taken a larger and larger share of total income. The U.S. tax burden is low compared to many European countries, but it is high compared to many other nations around the world. As a nation gets richer, the government typically takes a larger share of income in taxes. THE FEDERAL GOVERNMENT Receipts Taxable income is computed as total income minus an amount based on the number of dependents (primarily children) and minus certain expenses that policymakers have deemed “deductible” (such as...
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