1. TAXATION!!!

2. 3 ways governments can bring in $$$ (revenue) WHICH ONE BRINGS IN (BY FAR) THE MOST? TAXES (DIRECT & INDIRECT) THE SALE OF GOODS AND SERVICES THE SALE OF STATE-OWNED (GOVERNMENT OWNED) ENTERPRISES Definition/examples of each?

3. NOW…FOR A NEW CURVE “The Laffer Curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue.” (Wikipedia)

4. Laffer Curve – Basic

6. Another Look @ The Laffer Curve

7. FYI: US Top Marginal Tax Rates

8. Average US Tax Rates

9. 2015 US Income Tax Rates From http://www.bankrate.com/finance/taxes/tax-brackets.aspx http://www.bankrate.com/finance/taxes/tax-brackets.aspx

10. 2014 Germany Income Tax Rates

11. 2014/5 UK Income Tax Rates

12. Japan Income Tax Rates (Year Unknown)

13. 2014 ROK Income Tax Rates

14. 2009 Effective Tax Rates, Selected Countries

15. Types of Taxes

16. Capital Gains Taxes *What are they? *Why do low rates tend to help the wealthy?*

17. China & Taxes Corporate Tax 25% Capital Gains: 20%

18. TAX DILEMMA Ability to pay principle v. Benefits-received principle

19. CALCULATING TAXES Let’s look @ Tragakes p. 316

20. Direct & Indirect Tax Calculations Remember that if a person is paying direct and indirect taxes, then you could be asked to calculate:  the average and marginal direct tax rates,  the average and marginal indirect tax rate  the average & marginal total tax rates.

21. Calculating average & marginal rates of taxes Average tax rate = Tax paid/total income (Total tax paid/Income) X 100 Marginal tax rate = Tax paid on additional income (Change in total tax paid/Change in income) X 100

22. Sample HL Paper 3 Question Tax Brackets for Country XYZ Income ($)% 0-5,0000 5001 to 20,00020 20,001 - 40,00040 40,001+50

23. Sample Tax Payers Individual A (low income) earns $15,000 per year. Individual B (middle income) earns $38,000 per year. Individual C (high income) earns $90,000 per year. 1. Calculate the amount of income tax paid by individuals A, B & C as a percentage of income. Eg: their average tax rate.

24. Individual A (low income) $15,000 per year $5000 x 0% + 10,000 x 20% = $2,000 tax paid Therefore average direct tax rate is $2000 / $15000 x 100 = 13.33%

25. Individual B (Middle Income) $38,000 per year $5000 x 0% + $15,000 x 20% + $18,000 x 40% ($3,000) ($7,200) = $10,200 tax paid Therefore the average direct tax rate is $10,200 / $38,000 x 100 = 26.84%

26. Individual C (High Income) Earns $90,000 per year $5000 x 0% + 15,000 x 20% + 20,000 x 40% + 50,000 x 50%. = $3000 + $8000 + $25,000 = $36,000 (Total Tax Paid) Therefore the average direct tax rate is $36,000/$90,000 x 100 = 40%

27. Marginal Tax Rates Example If individual B receives an increase in earnings from $38,000 to $48,000, what will be the marginal tax rate? Individual B will now pay: $5000 x 0% + $15,000 x 20% + $20,000 x 40% + $8000 x 50% = $3000 + $8000 + $4000 = $15,000. Individual B is now paying $4800 in more tax. Marginal Tax Rate is ($4800 – change in tax paid) $10,000 change in income = 48%

28. MORE PRACTICE! See the “Calculating Taxes Practice” worksheet