The Economics of Taxation

Taxes Income Property Sales Tax – Money paid to the government Common Taxes Income Property Sales

Economic Impact of Taxes Resource Allocation Behavior Adjustment Productivity and Growth Incidence of a Tax Who actually pays the tax?

Criteria for Effective Taxes Equity Fairness. Taxes should be impartial and just. What is Fair? Simplicity Both payers and collectors should understand taxes Efficiency Easy to administer

Two Principles of Taxation Benefit Principle Those who benefit from government goods and services should pay in proportion to the amount of benefits they receive Ability-to-Pay Principle People should be taxed according to their ability to pay. The more money you have the more taxes you should pay

Types of Taxes Proportional Tax Progressive Tax Regressive Tax Everyone pays the same percent Progressive Tax The higher the income the higher the tax percentage Used in the US for Income Tax Regressive Tax Higher percentage on Lower incomes