ECON chapter 9 1. __________ affect the factors of production & therefore, resource allocation.

Sec 1  2. A tax placed on a good at the factory raises production _____; if demand stays the same, the __________ price goes up.  3. Taxes affect the economy by encouraging or discouraging certain activities.  4. A _________ is a high-percentage tax that raises revenue while reducing consumption of a socially undesirable product. Example?

Sec 1  5. Taxes affect productivity & economic growth by changing the ___________ to save, invest, & work.  6. The ____________ of a tax is the final burden of the tax; it is easier for a producer to shift the incidence of a tax to the ___________ if the demand is __________; the more the _________ the demand, the more likely the ________ will absorb a greater portion of the tax.

Sec 1  7. Taxes are effective when they are ___________, simple, & _________. Criterion 1 – equity or fairness; fairness is subjective, but taxes are considered fairer if they have fewer loopholes Criterion 2 – simplicity; tax laws should be easy to understand Criterion 3 – efficiency; which means it is easy to administer & is successful at generating revenue

Sec 1  8. The _______________ states that those who benefit from gov’t goods and services should pay in proportion to the amount of benefits they receive.  9. The limitations of this principle are that many gov’t services provide the greatest benefit to those who can least afford them & that benefits are hard to measure.

Sec 1  10. The _____________ principle is the belief that people should be taxed according to their ability to pay.  11. The ability-to-pay principle is based on two ideas; that societies cannot always measure the benefits derived from gov’t spending, and people with ___________ suffer less discomfort in paying taxes that people with lower incomes.

Sec 1  12. A ______________ tax is one that imposes the same percentage on everyone, regardless of income.  13. A _______________ tax is one that imposes a higher percentage of tax on persons with higher incomes.  14. A ________________ tax is one that imposes a higher percentage on low incomes than on high incomes.

Sec 2  1. The federal government collects about __% of its revenue from the individual income tax.  2. Taxes are typically withheld from individual’s ___________, with employers sending the taxes directly to the _____.

Sec 2  3. Individuals file a tax return on or before ________ each year; if taxes withheld are more than the taxes owed, the individual receives a _______; if not, the individual makes a __________ of the tax balance.  4. The individual income tax is a ______________ tax because individuals earning higher incomes pay higher tax rates.

Sec 2  5. The _________________ ____________ Act (FICA) tax pays for ____________ and _________.  6. FICA is the second largest source of government revenue.  7. The FICA tax is a __________ tax. Social Security is partly a proportional tax and partly a regressive tax.

Sec 2  8. ____________ pay a tax on their profits because they are considered legal entities.  9. Corporate tax is the third largest source of gov’t revenue.  10. The ________ tax is a regressive tax on the manufacture or sale of selected items.

Sec 2  11. The __________ tax deals with the transfer of property when a person dies.  12. The ______ tax is placed on large donations of money or wealth and is paid by the donator.  13. A _____________ is a charge levied on goods brought in from other countries.

Sec 2  14. The Reagan administration implemented user fees for the use of goods or services.  15. User fees are an example of taxation based on the benefit principle.

Sec 3  1. Intergovernmental revenues are funds collected by one level of gov’t that are distributed to another level.  2. Intergovernmental revenues are the ____________ of revenues for state & local governments; about ____ of all state revenues.  3. A __________ tax is one levied on consumer purchases for nearly all products.

Sec 3  4. Employee _____________ contributions make up the ____ largest source of income.  5. __________ income tax revenues make up the ______ largest source of income.  6. Other sources of revenue include interest earnings on surplus funds; fees from state owned colleges, universities, and schools; corporate income taxes, & hospital fees.

Sec 3  7. Intergovernmental revenues are generally _________ for education & public welfare; they make up the largest source of local gov’t revenue  8. ___________ taxes are levied on tangible and intangible products; they make up the second largest source.

Sec 3  9. Local governments receive revenues from gov’t owned public utilities and state owned liquor stores.  10. Some towns & cities have a _____ tax, which is collected along with the state’s sales tax.  11. Other sources of local income include hospital fees, personal taxes, & public __________.

Sec 3  12. Looking at your payroll withholding statement will help you identify many of your state & local government’s revenue sources.  13. Additional deductions can be added to payroll for retirement contributions, purchases savings bonds, or credit unions.

Sec 4  1. The _________________ Act of 1981 reduced taxes for individuals & businesses.  2. During the 1980s, most Americans believed that the tax code favored the rich.  3. In _______ Congressional tax reform limited the tax brackets to 15% to 28%.

Sec 4  4. The Omnibus Budget Reconciliation Act of _____ added two higher income tax brackets, but its goal was more to assist in balancing the federal budget than in adjusting rates for income levels.  5. In 1997, the ___________ Act was passed giving tax credits for children & educational expenses, & reduced rates to people with capital gains from long-term investments in stocks and bonds.

Sec 4  6. In 2003, to offset the recession, the _________ administration & Congress made the 2001 tax cuts effective immediately, reducing the top four tax brackets, the upper limit for lower-income taxpayers, and capital gains tax.  7. A _____________ tax (VAT) places a tax on the value that manufactures add to a good at each state of production.

Sec 4  8. Advantages to the VAT: the tax is levied on the total amount of sales less the cost of inputs; the incidence of the tax is widely spread among the manufactures involved; it is easy to collect; it encourages people to save.  9. Disadvantages of the VAT: taxpayers are unlikely to notice increases; & it would compete with state sales taxes.

Sec 4  10. A ____ tax is a proportional tax on individual income after a specified income threshold has been reached.  11. Unexpected economic slowdowns, such as the 2001 recession, can cause ______________ to fall & budget deficits to occur.