Economics Chapter 18 Study Guide

Economics Chapter 18 Study Guide - Economics Chapter 18...

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Economics Chapter 18 Study Guide 1) The Tax System a) Most widely used taxes: i) Individual income taxes: (1) Tax wages, salaries and other income of households and the profits of firms. (2) 2 nd largest source of revenue ii) Social insurance tax (1) The federal government taxes wages and salaries to raise revenue for the Social Security and Medicare systems. (2) The Social Security and Medicare taxes are referred to as “payroll taxes.” iii) Sales taxes (1) Most state and local governments tax retail sales of most products iv) Property taxes (1) Tax homes, offices, factories and the land they are built on. (2) Large source of fund for schooling. v) Excise taxes (1) Tax specific goods, such as gasoline, cigarettes and beer. b) An Overview of the U.S Tax System i) Federal government raises more than 80% of its revenue form the individual income tax and form social insurance taxes. ii) The largest source of revenue for state and local governments is grants form the federal government, often called federal mandates. (1) Ex: Medicaid iii) Local government depend heavily on property taxes. c) Progressive and Regressive Taxes i) A tax is regressive if people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes. ii) A tax is progressive if people with lower incomes pay a lower percentage of their income in tax than do people with higher incomes. (1) Federal income tax iii) A tax is proportional if people with lower incomes pay the same percentage of their income in tax as do people with higher incomes. iv) A tax rate is the percentage of income paid in taxes v) A tax bracket refers tot eh income range within which a tax rate applies. Income Tax Rate $0 to $7300 10% Over $326,450 35% d) Making the Connection (Which Groups Pay the Most in Federal Taxes?) i) The federal individual income tax and all federal taxes taken together are progressive. e) Marginal and Average Income Tax Rates
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i) Marginal tax rate is the fraction of each additional dollar of income that must be paid in taxes. ii) The
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Economics Chapter 18 Study Guide - Economics Chapter 18...

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