Ch. 9.1 Notes : Tax Basics. I. Taxes = money collected by all levels of government. Collected through various ways. Money is used to pay for societal.

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Presentation transcript:

Ch. 9.1 Notes : Tax Basics

I. Taxes = money collected by all levels of government. Collected through various ways. Money is used to pay for societal needs. II. Impact of Taxes A. People buy less when taxes are high 1. ex. Luxury Tax B. Sometimes used by gov to change “socially undesirable behavior” through a group of taxes nicknamed “sin taxes” 1. Ex. Alcohol, Tobacco tax

C. Lessens incentive to work because the more you earn, the more taxes you pay D. Forces production cost to rise because of businesses paying taxes. Cost eventually is passed on to consumer through higher prices

III. Two Theories on who should be taxed in our society A. Ability to Pay Theory > tax those who can afford to pay, even if they don’t use the gov service provided by taxes B. Benefit Principle Theory > tax those who benefit from the gov service 1. Ex. gas tax helps pay for roads used by drivers

IV. Three Types of Tax Strategies : A. Proportional Tax > everyone pays the same, regardless of your income 1. Ex. flat tax B. Progressive Tax > tax increases as you earn more money 1. Ex. our income tax system C. Regressive Tax > tax increases as a percentage of your income as you make more money 1. Ex. sales tax

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