1. Types of Taxes

2. Impact of Taxes How do taxes affect the decisions you make? Resource Allocation- Whenever a tax is placed on a good or service, it raises the product’s price to the consumer Behavior Adjustment- Taxes are sometimes used to ecourage or discourage certain types of activities Ex. Interest on mortgages or a tax deduction Sin Tax- Relatively high tax designed to raise revenue while reducing consumption of a socially undesirable product

3. Redistribution of Income Redistribution of Income- The way in which income is allocated among families, individuals, or other groups Taxes are collected because government needs to pay for its spending. Distribution of income is always affected by taxes.

4. Productivity and growth Taxes can affect productivity and economic growth by changing the incentive to save, invest, and work. If taxes are already too high, why work more? Incidence of Tax- The final burden of the tax This can happen if you have an indirect tax (shifted to others), or a direct tax (can’t be shifted) Business tax (indirect) and Income tax (direct)

5. Characteristics and types of taxes 1. Equity- Fairness, means that the taxes should be impartial and just 2. Simplicity- Taxpayers and collectors should be able to understand them Individual Income Tax- Federal tax on people’s money IRS (Internal Revenue Service)- Branch of the U.S. Treasury Department that collects taxes Sales Tax- General tax levied on most consumer purchases

6. 3. Efficiency- A tax should be relatively easy to administer and reasonably successful of generating revenue Collecting personal income tax by paycheck is efficient Tax returns are less efficient because it is an annual report to the IRS. It includes deductions, total income, and taxes withheld

7. 2 Principles of taxation Benefit Principle- Those who benefit from government goods and services should pay in proportion to the amount of benefits they receive. Gas tax- people who drive more pay more in a gas tax Ability to Pay- The belief that people should be taxed according to their ability to pay, regardless of benefits received. Assumes wealthy people get hurt less paying more in taxes

8. types of taxes Proportional Tax- Imposes the same % rate of taxation on everyone, regardless of income Medicare tax Progressive Tax- Imposes higher % rate of taxation on higher incomes than lower ones. Marginal Tax Rate- Tax rate that applies to the next dollar of taxable income.

9. Regressive Tax- A tax that imposes a higher % rate of taxation on low income than on high ones. State sales tax