Resource Allocation.

When a tax is placed on a product the Supply curve moves left, raising prices, lowering quantity sold.

The factors used to produce (land, labor, Entrepreneurship & Capital) will be reallocated or unused.
Behavior Adjustment.

Sin Tax — Tax on Cigarettes, tobacco, Liquor. Taxes will move the supply curve left.
Productivity and Growth

If taxes become too high it effects people's incentive to earn.

High taxes reduces the amount of money that people can save reducing economic growth.

1 Equity. Impartial and just. Fair. Problem is what is fair:

1. Everyone pays the same amount.
2. The wealthy pay more than the poor do.
3. A Fair tax is a tax on someone else.

2 Simplicity. Both the tax payer and tax collector can understand them.

People are more likely to pay taxes if they can understand them.
3 Efficiency.

Simple to collect - Income tax vs. toll road.
The tax needs to raise enough revenue to be worthwhile.
Does more good than harm

1 Benefit Principle of Taxation (2)

1. The belief that taxes should be paid according to benefits received regardless of level of income.
2. People should pay taxes in proportion to the amount of service or benefits they receive.

Gasoline Tax is paid by motorists and used to pay for rods.
Problems/Limitations:

1 Government service provide the greatest benefit to those least able to afford to pay.
2. Benefits are hard to measure. Do roads help others? Property owners, shopping centers, tourists

1. Ability to Pay Principle — taxes should be paid according to level of income regardless of benefits received.
1. Measurement. Society not always able to measure the benefits derived from government spending.
2. Discomfort. People with higher incomes suffer less discomfort paying taxes than people of low incomes.

1. proportional, percentage of income paid is the same regardless of the level of income

The Average Tax Rate (Taxes divided by income) is constant. Percentage of income paid to taxes is constant.
2. progressive, percentage of income paid rises as income rises.

Marginal Tax rate — applies to the next dollar of taxable income. As income raises so does the percentage.
3. regressive, percentage of income paid. goes down as income rises.

Sales Tax on consumables. Tax based as a percentage of total income.
Low income levels must spend all of income on consumables.
10,000 income. 5,000 in taxable at 5% = 250.00 tax. 2% of total income
100,000 income. 20,000 in taxable spending at 5% = $1,000 tax or 1% of total income

1-Individual income,
2 FICA,
3. Corporations,
4 Miscellaneous

a progressive tax administered through a payroll withholding system. Treasury Department collects taxes
through the Internal Revenue Service (IRS)
individual income tax — tax on the wages, salaries, and other income earned by individuals.
payroll withholding system deducts income taxes from paychecks

tax return annual report filed with Federal, state, and local governments listing the income, taxes prepaid and taxes owed.
indexing — adjustment of tax brackets to offset the effects of inflation.

FICA — Federal Insurance Contributions Act of 1933. Passed during the depression to aid old people.
Medicare is the federal health care program for senior citizens.
Taxes Rates
FICA — 6.2 percent of the first 57,600 of income.
Proportional to 57,600, then becomes regressive.
For Low Income workers it is a regressive tax. Takes a High % of total income
Medicare — 1.45 percent of total income

Corporations are separate legal entities. 4 levels of taxation. 4 marginal tax brackets.
15% — to 50,000
25% — 50-75,000
34% — 75,000 - 10 Million
35% — over 10 Million

Excise Tax — tax on the sale or manufacture of an item. Paid by the manufacturer and passed on to the consumer.
Gasoline, liquor, telephone, tires, betting, coal, .
Because low income family spend a greater percent of income they are regressive.
Luxury Tax — placed on certain consumer goods. Cars, boats, etc.

Luxury Tax on boats earned 53,000 in the first year and caused $100,000,000 loss to the economy

due elasticity of demand caused 1993 after only two years tax except on cars removed.
Estate Taxes. Now only on estates of over 600,000 varies from 18 to 55 percent. Used to be on estates of 10,000.
Gift Taxes — Tax on gifts of money or wealth. So people do no give then property away to avoid estate taxes.
Customs Duty — tax placed on foreign made goods that are imports. produces very little income.
User Fees — Entrance Fees, National parks, Museums,

State governments receive most of their revenues in the form of sales taxes, intergovernmental revenues, individual income taxes, and employee retirement contributions.

State government Revenue Sources

Sales Tax — general state or city tax levied on a product at the time of sale.
Intergovernmental Revenues — funds one level of government receives from another level of government.
Individual income Taxes — tax levied on the wages, salaries, and other income of individuals.

Employee Retirement Contributions
Others Revenue

Interest
tuition and fees
Corporate Income taxes
Hospital & other service fees.

1. Intergovernmental revenue
2. Property Taxes

property tax — tax tax on tangible and intangible possessions such as real estate, buildings, furniture,\

stocks, bonds, and bank accounts
real property — wealth in the form of real estate, buildings, and permanent attachments.
tangible personal property — all tangible items of wealth not permanently attached to land or buildings.

Generally auto but nothing else
intangible personal property — ownership rights to property; includes stocks, bank accounts.
tax assessor — person who examines and values property for tax purposes.

3. Utility incomes and Liquor Store Income

Water, sewer, electricity, liquor sales. How much does Brookfield provide.
4. Sales Taxes. General Collected by the state for local units of government.

Wisconsin sales tax can be anywhere from 4.0 to 4.6%. Why? Who gets what? Is it fair? .1% for stadium.
5. Others

Licenses, school fees, hospital, personal income tax. Source for taxation much more limited.

Federal Income Tax
State income Tax
Local Income Tax — county, city, non-resident county tax, non-resident city tax
FICA — Social Security & Medicare fees.
State Retirement
Voluntary Payments, insurance, retirement, saving bonds, deductions to bank or credit union, union fees,
payroll withholding statement — document attached to a paycheck summarizing pay and deductions.