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Lecture 32 - Announcements MT3 Grades are posted e-mail me...

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Announcements MT3 Grades are posted – e-mail me with your ID # if you do not have a grade (but should) Two more topics – taxes and trade Today-taxes (and maybe some trade) Monday – trade and evals Weds – trade and wrap-up Ch 19 HW AND Taxes HW due the last day of class The final is cumulative – 80 questions. Last chance to check iClicker grades – if you have a zero, let me know NOW!
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Taxes from Ch3 (p64) and Ch5 appendix (back of book). But a lot of this stuff is not in the book.
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THE ECONOMICS OF TAXATION tax base The measure or value upon which a tax is levied. TAXES: BASIC CONCEPTS tax rate structure The percentage of a tax base that must be paid in taxes—25 percent of income, for example.
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TAXES I. Types of taxes II. Who pays? a) Basis of taxation b) The incidence of taxes III. The effect of taxes on behavior (distortion)
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I. TYPES OF TAXES Taxes on stocks Houses Cars Land Wealth Taxes on Flows Income (Wages) Sales (Consumption) Profits Payroll
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TYPES OF TAXES Taxes on Flows Taxes on Economic “Flows”
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TYPES OF TAXES Federal Government Receipts 1960–2005 (billions of dollars) Individual Income Tax Corporation Income Tax Social Insur. Payroll Taxes Excise Taxes Other Receipts Total 1960 40.7 21.5 14.7 11.7 3.9 92.5 % 44.0 23.2 15.9 12.6 4.2 100 1970 90.4 32.8 44.4 15.7 9.5 192.8 % 46.9 17.0 23.0 8.1 4.9 100 1980 244.1 64.6 157.8 24.3 26.3 517.1 % 47.2 12.5 30.1 4.7 5.1 100 1990 466.9 93.5 380.0 35.3 56.2 1,032.0 % 45.2 9.1 36.8 3.4 5.4 100 2005* 893.7 226.5 773.7 74.0 84.8 2053.0 % 43.5 11.0 37.7 3.6 4.1 100 * OMB estimate Source: United States, Office of Management and Budget. Percentages may not add to 100 due to rounding. Note: most sales taxes are levied on a state level. Some states have no sales tax (Delaware).
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TYPES OF TAXES Proportional, Progressive, and Regressive Taxes proportional tax A tax whose burden is the same proportion of income for all households. The social security tax is proportional. progressive tax A tax whose burden, expressed as a percentage of income, increases as income increases. Other income tax is progressive.
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INCOME TAXES Individual Income Tax Rates, 2005 MARRIED COUPLES FILING JOINTLY TAXABLE INCOME TAX RATE $0 - 14,600 10% $14,601 – 59,400 15% $59,401 – 119,950 25% $119,951 – 182,800 28% $182,801 – 326,450 33% More than $326,450 35% SINGLE TAXPAYERS TAXABLE INCOME TAX RATE $0 – 7,300 10% $7,301 – 29,700 15% $29,701 – 71,950 28% $71,951 – 150,150 33% $150,151 – 326,450 35% Source : The Internal Revenue Service.
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TYPES OF TAXES regressive tax A tax whose burden, expressed as a percentage of income, falls as income increases. Sales taxes (also called excise taxes) are regressive. The Burden of a Hypothetical 5% Sales Tax Imposed on Three Households with Different Incomes HOUSEHOLD SAVING INCOME RATE, % SAVING CONSUMPTION 5% TAX ON CONSUMPTION TAX AS A % OF INCOME A $ 10,000 20 $ 2,000 $ 8,000 $ 400 4.0 B 20,000 40 8,000 12,000 600 3.0 C 50,000 50 25,000 25,000 1,250 2.5
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TYPES OF TAXES Marginal versus Average Tax Rates average tax rate Total amount of tax paid divided by total income. marginal tax rate The tax rate paid on any additional income earned.
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TYPES OF TAXES Tax Calculations for a Single Taxpayer Who Earned $100,000 in 2005 Total income $100,000 - Personal exemption $3,200 - Standard deduction $5,000 = Taxable income $91,800 Tax Calculation 0 - $7,300 taxed at 10% > $7,300 X .10 = $730 $7,300 - $29,700 taxed at 15% = ($29,700 – $7,300) X .15 = $22,400 X .15 = $3,360 $29,700 - $71,950 taxed at 25% = ($71,950 – 29,700) X .25 = $42,250 X .25 =
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