In politics almost everyone has an incentive to order

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Unformatted text preview: split the check, anything you order is going to be cheap indeed. What’s the lobster cost now? Dessert? I’ll have 15. In politics, almost everyone has an incentive to order big off the government menu. Yet, if everyone has an incentive to order big, and does order big, the total spending bill is going to be huge. THINK ABOUT IT Why do you think people sometimes agree to split the check evenly rather than deciding that each individual will pay his or her exact share? Does splitting the check lead to a higher total? Section 2 The Budget: Deficits and Debt 381 14 (364-389) EMC Chap 14 11/18/05 10:59 AM Page 382 Ability-to-Pay Principle President Bush confers with members of his cabinet regarding the budget. The president is obligated to submit his budget recommendations to Congress on or before the first Monday in February each year. What Is a Fair Share? Most people say that it is only right for everyone to pay his or her fair share of taxes. The problem is, how do we decide what a fair share is? And who decides? Historically, two principles of taxation touch on this issue: the benefits-received principle and the ability-to-pay principle. Benefits-Received Principle The benefits-received principle holds that a person should pay in taxes an amount equal to the benefits he or she receives from government expenditures. For example, if you drive often on government-provided roads and highways, you ought to pay for the upkeep of the roads. This goal is usually met through the excise tax on gasoline. People who drive a lot buy a lot of gas, so they pay more in gas taxes than people who drive very little. Because gas tax revenues are used for the upkeep of the roads, the major users of the roads end up paying the bulk of road upkeep costs. 382 Chapter 14 Taxing and Spending With some government-provided goods, it is easy to figure out roughly how much someone benefits. For instance, in the roads-andhighways example, we can assume that the more a person drives on the road or highway, the more benefit he or she obtains from it. With other government-provided goods, however, it is not as easy to relate benefits received to taxes paid. For example, we could say that almost all Americans benefit from national defense, but we would have a hard time figuring out how much one person benefits compared to another person. Does Jackson, down the street, benefit more than, less than, or the same as Paul, who lives up the street? The benefits-received principle is hard to implement in such cases. Often, the ability-to-pay principle is used instead. This principle says that people should pay taxes according to their abilities to pay. Because a rich person is more able to pay taxes than a poor person, a rich person should pay more taxes than a poor person. For example, a millionaire might pay $330,000 a year in income taxes, whereas a person who earns $50,000 a year might pay $8,000. he federal income tax came into existence in 1913. In that year, the top tax rate th...
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This document was uploaded on 01/16/2014.

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