Criteria for Effective Taxes

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Presentation transcript:

Criteria for Effective Taxes Equity- Make as fair as possible Simplicity- Everyone can understand Efficiency- Easy to administer and generates revenue

Principles of Taxation Benefit principle of taxation- those who benefit more from spending of tax dollars should pay more for the taxes

Ability to Pay Those that can best afford to pay taxes pay more taxes

Progressive Taxes Tax that takes a larger percentage of higher incomes and smaller percentage of lower incomes EX: Federal Income Tax

Regressive Taxes Tax that takes a larger percentage of lower incomes and smaller percentage of higher incomes EX: Sales Tax

Proportional Taxes Tax that takes the same percentage of income from all taxpayers Ex: Income Tax Percentage if set at 20%.

Tax Incidence Group on whom the tax burden actually falls

Direct Taxes Tax levied and paid by an individual taxpayer EX: Personal income tax

Indirect Taxes Tax that can be shifted from one person to another EX: Property tax for landlords, businesses Ease of shifting tax depends on how bad consumers want product (Inelastic Demand)