Proportionate taxes tax whereby a change in the tax

This preview shows 5 out of 7 pages.

Proportionate Taxes Tax whereby a change in the tax base results into a same change in the tax rate. Places an equal burden on the rich, middle class and the poor. Textbook talks of flat tax rate. Regressive Taxes Tax whereby a change in the tax base results into a smaller change in the tax rate. It falls more heavily on the poor than on the rich. Sale tax actually is regressive tax. Why? Because rich and poor pay the same 8.75% sale tax. President Reagan was elected in 1980 promising to cut taxes. President Bush “Read my lips, no new taxes over my dead body.” SOURCES OF FEDERAL REVENUE Federal - Income Tax State - Sales Tax Local - Property Tax Main source. The personal Income Tax; The federal government has 3 main sources of tax revenue, (individual income taxes 37%, social insurance receipts 31% and borrowing 17%), The largest is the personal income tax. This tax was only a minor source of federal revenue until WWII. The Corporate Income Tax
Image of page 5

Subscribe to view the full document.

Until the late 1970s, this was the second largest source of federal revenue, but it is now a distant third. Under the Tax Reform Act of 1986, the maximum rate was lowered from 46% to just 30%. Don’t most large corporations have ended up paying more tax because several deductions were reduced. The corporate income tax is a tax on a corporation’s profits. Excise Tax An excise tax is a sales tax, but it is aimed at specific goods and services, e.g. tires, cigarettes, liquor, gasoline, phone calls. Most excise taxes are collected by the federal government, although state and local governments often collect taxes on the same items. a) Revenue Source accounts for about 4% of federal revenue b) Reduce consumption of certain products. (Socially undesirable goods) Excise taxes are generally regressive because they tend to fall more heavily on the poor and working class. The tax on most consumer goods is regressive because the poor tend to spend a higher proportion of their income on consumption than the rich. SOURCES OF STATE AND LOCAL REVENUE The Sales Tax Over ½ of the taxes collected by the states come from the sales tax. This is a highly regressive tax. Although most food items are exempt, the poor consume a higher proportion of their income than the rich who are able to save. In other words, a higher proportion of the income the poor are subject to this tax. The Property Tax Over 80% of all local tax revenue is derived from the property tax. There is some disagreement about whether this is a regressive tax, but it is a deduction that you may take on your federal income tax. The Economic Recovery Tax Act of 1981 ( Kemp-Roth tax cut ) This act lower the average citizen’s tax bill by 23% over a 3-yr. Period. The maximum rate was out from 70% to 50%, and, most analysts agreed, the wealthiest thing of the population got most of the benefits.
Image of page 6
Image of page 7
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern