Chevalier Spring 2015

 Some Quick notes on Government Revenues  1. Government revenues have increased 800% since 1940 (adjusted for inflation)  2. Spending by all levels of government has increased by 2.5% annually  Amount of revenue depends economic performance

 1. Borrowing (Bonds)  3 different types ▪ T-bonds ▪ T-notes ▪ T-bills

 2. Selling Services and goods  For example: military products  For example: national parks, auctions, museums, real estate, property, furniture, vehicles

 3. Taxes affect:  1. Resource allocation  2. Consumer behavior  3. Nation’s productivity and growth

 Resource allocation  Taxes levied on certain things can raise cost of production, which shifts S curve to left  If demand remains unchanged, price goes up  People then buy less, causing cut-backs on production ▪ For example: 1991-luxury tax implemented on expensive cars, planes, yachts (demand for these products is elastic)

 Sin Tax  Alcohol and tobacco ▪ Demand is inelastic, government can raise billions  Mortgage Interest  Children

 Incentive to work and produce  Democrats vs. Republicans  Europe’s high UER; why does this exist?

 AKA the ‘Incidence of a tax’  How taxes on products gets passed along ▪ Inelastic v. elastic ▪ By definition: the final burden of a tax ▪ Examine two demand curves

 1. Equity- a tax has to be fair  Loopholes  Different types of taxes:  Benefit principle of taxation ▪ Toll Roads, gas tax, tire tax ▪ Welfare/hard to measure  ‘ ability to pay’ principle ▪ Progressive income tax

 2. Simplicity- a tax has to be easy to understand  Indiv. Income tax (complicated) ▪ This is why people don’t like the IRS  Sales tax ▪ Much easier to understand

 3. Efficiency- Ease of administration and successful at generating revenue  Indiv. Income tax ▪ How is it collected ▪ What is an inefficient tax?

 1. Progressive tax  2. Regressive tax  Proportional tax (flat)  Estonia (26%)  Lithuania (33%)  Latvia (25%)  Russia (13%)  Serbia (14%)

 Federal Sources  1. IIT’s ▪ payroll deductions  IRS (progressive)  2.FICA- Payroll taxes (SS and Medicare) ▪ 12.4% up to $118,500 (SS) and 2.9% (MC) = 15.3% (7.65 %)  3. Corporate income taxes ▪ 34% on income at 75K ▪ 35% on incomes in excess of 18.3 million (progressive)  4. Excise taxes – phones, gas, liquor, tires, legal betting  4. Estate and gift Taxes (5.43M) (40%) (14K)

 State:  1. sales tax-Alaska, Delaware, Montana, NH, Ore.  Local Taxes (counties)  1. property taxes