DISTRIBUTION OF INCOME

GOVERNMENT CAN REDISTRIBUTE INCOME IN 3 BASIC WAYS:  TAXATION  TRANSFER PAYMENTS  GOODS AND SERVICES IN KIND

EQUITY  HORIZONTAL: Two people having the same income should pay the same tax.  VERTICAL: Less tax would be paid by low income earners and more taxes would be paid by high income households.

TYPES OF TAXES  DIRECT TAXATION: Are the taxes that are levied on the income and resources of individuals and organizations. Normally they are levied on wealth or income throughout income tax, corporate tax, capital gains, inheritance tax, etc.

 INDIRECT TAXES: Are charged on goods and services produced, imported or exported. Ex: Sales tax, value added tax (VAT), or Goods and Services Tax (GST).

REGRESSIVE, PROGRESSIVE AND PROPORTIONAL TAXES  Regressive: Is a tax which takes a higher percentage of income from people whose income is low. It places proportionately more of a burden on those with lower incomes.  Progressive: Tax imposed so that the tax rate increases as the amount to which the rates applied increases. (Normally referred as income taxes. People with more income pay a higher percentage of that income tax than those with less income).  Proportional: Percentage of tax is unchanged at higher income levels.

Taxes INCOME (Y) Tax Payments

Transfer Payments  Pension Payments  Welfare payments  Unemployment benefits  Housing subsidies  Subsidies to corporations to lower costs.  Non Cash / Indirect Payments  Merit Goods  Education  Health  Roads, etc