1. Micro Chapter 29 Presentation 2- Taxation

2. Question When you live on your own, what expenses would you have to pay?

3. I Thought I made Money! $2512.91….24 payments $60309.84 total $502.44 to STRS $585.10 to Fed income tax $130.18 to state income tax $71.94 to Medicare $99.24 to Mayfield Village $74 car insurance $100 gasoline $83 cell phone $57.06 to medical insurance $300 to 403 B $1225 to mortgage $110 to electric $95 to gas $23 to H20 and sewer $118 to cable/internet $150 food $150 entertainment =$3873.96 spending per month $5025.82 income

4. Effective Tax Rate The actual amount (%) of tax paid by an individual after deductions have been made

5. Average Tax Rate Total tax paid divided by total (taxable) income, as a percentage

6. Progressive Tax Average tax rate increases as income increases A larger absolute value and a larger percentage of income as income increases

7. Regressive Tax Average tax rate declines as income increases Smaller proportion of income as income increases

8. Proportional Tax Average tax remains the same regardless of the size of income

9. Personal Income Tax Progressive tax with rates ranging from 10-35% of income Deductions such as mortgage interest can make the taxes slightly less progressive

10. 2011 IRS Tax Brackets Tax BracketMarried Filing JointlySingle 10% Bracket$0 – $16,750$0 – $8,375 15% Bracket$16,750 – $68,000$8,375 – $34,000 25% Bracket$68,000 – $137,300$34,000 – $82,400 28% Bracket$137,300 – $209,250$82,400 – $171,850 33% Bracket$209,250 – $373,650$171,850 – $373,650 35% BracketOver $373,650

11. Sales Tax Although it would seem to be proportional, sales tax is actually regressive A larger portion of the low-income family’s income is exposed to the tax than the rich

12. Corporate Income Tax Set up to be a proportional tax of 35% However, most companies pass along part of this rate to the consumer making the tax regressive

13. Payroll Taxes Taxes levied on payrolls such as Medicare and Social Security Regressive Tax

14. Property Taxes Regressive due to: 1. Most landlords add rent to cover costs 2. As a % of income, property taxes are higher for low-income individuals

15. Efficiency Loss of a Tax/Deadweight Loss The loss of net benefits to society because a tax reduces the production and consumption of a taxed good below the level of allocative efficiency