The first four principles are adapted from adam smith

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College Accounting, Chapters 1-27
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Chapter 9 / Exercise 9
College Accounting, Chapters 1-27
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ThefirstfourprinciplesareadaptedfromAdamSmithsThe Wealth of Nations. The other six are summar-ized as follows:The tax system should be simple.The tax should be neutral in terms of its effect on busi-ness decisions.The tax system should not reduce economic growthand efficiency.The tax should be clear and readily understood so thattaxpayers know about it and when it applies.The tax should be structured so as to minimize non-compliance.The tax system should enable the IRS to predict theamount and timing of revenue production.Source:Adapted from a Tax Policy Concept Statement issued bythe Tax Division of the AICPA.© Andrey Prokhorov, iStockphotoCHAPTER 1An Introduction to Taxation and Understanding the Federal Tax Law1-5
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College Accounting, Chapters 1-27
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Chapter 9 / Exercise 9
College Accounting, Chapters 1-27
Heintz/Parry
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E X A M P L E2If Cora, a married individual filing jointly, has taxable income of $10,000, her tax for2012 is $1,000 for an average tax rate of 10%. If, however, Coras taxable income is$50,000, her tax will be $6,630 for an average tax rate of 13.3%. The tax is progressivebecause higher rates are applied to greater amounts of taxable income.nIncidence of TaxationThe degree to which various segments of society share the total tax burden is diffi-cult to assess. Assumptions must be made concerning who absorbs the burden ofpaying the tax. For example, because dividend payments to shareholders are notdeductible by a corporation and are generally taxable to shareholders, the sameincome is subject to a form of double taxation. Concern over double taxation isvalid to the extent that corporations arenotable to shift the corporate tax to theconsumer through higher commodity prices. Many research studies have shown ahigh degree of shifting of the corporate income tax, converting it into a consump-tion tax that is borne by the ultimate purchasers of goods.The progressiveness of the Federal income tax rate structure for individuals hasvaried over the years. As late as 1986, for example, there were 15 rates, rangingfrom 0 to 50 percent. These later were reduced to two rates of 15 and 28 percent.Currently, there are six rates ranging from 10 to 35 percent.1.5MAJORTYPES OFTAXESWhy does a text devoted primarily to the Federal income tax discuss state and localtaxes? A simple illustration shows the importance of non-Federal taxes.E X A M P L E3Rick is employed by Flamingo Corporation in San Antonio, Texas, at a salary of$74,000. Ricks employer offers him a chance to transfer to its New York City office ata salary of $94,000. A quick computation indicates that the additional taxes (Federal,state, and local) involve approximately $12,000.nAlthough Rick must consider many nontax factors before he decides on a jobchange, he should also evaluate the tax climate. How do state and local taxes com-pare? For example, neither Texas nor San Antonio imposes an income tax, but NewYork State and New York City do. Consequently, what appears to be a $20,000 payincrease is only $8,000 when the additional taxes of $12,000 are taken into account.Property TaxesCorrectly referred to asad valorem taxes

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