Micro Chapter 29 Presentation 2- Taxation

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

I Thought I made Money! $ ….24 payments $ total $ to STRS $ to Fed income tax $ 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 $150 entertainment =$ spending per month $ income

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

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

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

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

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

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

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

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

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

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

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

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