FS08EC2106_L12

FS08EC2106_L12 - CHAPTER 12 The Design of the Tax System...

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C H A P T E R The Design of the Tax System ECON 2106-C Prof. B-C Kim 12
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In this chapter, look for the answers to these questions: ± What are the largest sources of tax revenue in the U.S.? ± What are the efficiency costs of taxes? ± How can we evaluate the equity of a tax system? 1
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THE DESIGN OF THE TAX SYSTEM 2 Introduction ± Lessons about taxes from earlier chapters: ± A tax on a good reduces the market quantity of that good. ± The burden of a tax is shared between buyers and sellers depending on the price elasticities of demand and supply. ± A tax causes a deadweight loss.
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THE DESIGN OF THE TAX SYSTEM 3 A Look at Taxation in the U.S. First, we consider: ± how tax revenue as a share of national income has changed over time ± how the U.S. compares to other countries with respect to taxation ± the most important revenue sources for federal, state & local govt
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Government revenue as a percentage of GDP 1 4
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THE DESIGN OF THE TAX SYSTEM 5 Total Government Revenue (% of GDP) Sweden 50% France 45 United Kingdom 37 Germany 36 Canada 36 Russia 32 Brazil 30 United States 28 Japan 27 Mexico 20 Chile 19 China 15 India 14
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THE DESIGN OF THE TAX SYSTEM 6 Receipts of the U.S. Federal Govt, 2007 Tax Amount (billions) Amount per person Percent of receipts Individual income taxes $ 1164 $3,482 45.3% Social insurance taxes 870 2,795 33.9 Corporate income taxes 370 1,180 14.4 Other 165 572 6.4 Total $2,568 $8,030 100.0%
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THE DESIGN OF THE TAX SYSTEM 7 Tax Amount (billions) Amount per person Percent of receipts Sales taxes $305.1 $1,010 24.1% Property taxes 401.3 1,329 31.7 Individual income taxes 291.7 966 23.0 Corporate income taxes 58.0 192 4.6 Other 211.7 701 16.7 Total $1,268 $4,197 100.0%
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THE DESIGN OF THE TAX SYSTEM 8 Taxes and Efficiency ± One tax system is more efficient than another if it raises the same amount of revenue at a smaller cost to taxpayers. ± The costs to taxpayers include: ± the tax payment itself ± deadweight losses ± administrative burden
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9 Deadweight Losses ± One of the Ten Principles: People respond to incentives. ± Recall from Chapter 8: Taxes distort incentives, cause people to allocate resources according to tax incentives rather than true costs and benefits. ± The result:
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FS08EC2106_L12 - CHAPTER 12 The Design of the Tax System...

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