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Tax Incidence - PAM2040 Theory: Definition...

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PAM2040 Taxation and Tax Incidence
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Defining the Income Tax Base Theory: Haig-Simons Comprehensive Income  Definition Taxable Resources = ability to pay = potential annual  consumption Practice: How do we define potential consumption?   What about the cost of earning money? Do we want to be neutral on how you spend your  money? Relative price of charitable giving is (1-t)
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Tax Expenditures Deviations from Haig-Simons due to a desire to  manipulate behavior
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“Marriage Tax Penalty” Haig-Simons is based on people, but people are not tax  units – the  family  is Non-proportional tax systems discourages “secondary  earner” employment
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How much Income Tax do you owe?  (2006)
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Tax Deductions vs. Tax Credits Tax Deductions lower the amount of income subject  to tax Tax Credits lower the amount of tax you owe
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