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Taxes Transfers Income Distribution

Taxes Transfers Income Distribution. Types of Taxes. personal income tax (all types of income) payroll tax (15.3 % of wage and salary income) corporate income tax (corporate profits) excise tax (gasoline, liquor, sales) estate and gift tax tariffs on imports property taxes.

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Taxes Transfers Income Distribution

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  1. Taxes Transfers Income Distribution

  2. Types of Taxes personal income tax (all types of income) payroll tax (15.3 % of wage and salary income) corporate income tax (corporate profits) excise tax (gasoline, liquor, sales) estate and gift tax tariffs on imports property taxes

  3. Federal Taxes

  4. taxable income = income less exemptions ($2550 per person) deductions (e.g. $4000 for single taxpayer marginal tax rate tax paid on an additional dollar earned average tax rate total taxes as a percent of total income Income Tax Terminology

  5. Progressive, Regressive, or Proportional?

  6. Big exemption $35000 would be the “zero-bracket” amount for a family of four Flat rate for all income above Hall-Rabushka version: Tax wage and salary income at the household level Interest, dividends taxed at the firm level What is the Flat Tax?

  7. Review of the Effect of Putting a Tax on a Commodity • Price rises, but by less than the tax • Quantity declines • Deadweight loss • size depends on how much quantity declines • Incidence of the Tax • who bears more of the burden of the tax • consumers or firms? • Depends on how much the price rises

  8. Effect of a Tax on Labor Income

  9. Payroll Tax: Firm versus Worker

  10. Effects of Tax Rate Changes on Tax Revenues (T14.1 Modified)

  11. The Laffer Curve

  12. Consider cutting the tax rate from .6 to .4 Before the tax cut, L = 700 hours thus: 0.6 times $14000 = $8400 Static scoring, L stays at 700 hours thus: 0.4 times $14000 = $5400 Dynamic scoring, L rises to 1000 hours thus: 0.4 times $20000 = $8000 The Dynamic Scoring Debate

  13. The Equality-Efficiency Trade-Off:As tax rates get higher (in an effort to improve equity) there is less production (less efficiency) and perhaps less revenue to redistribute

  14. Transfer Payments • Means-tested programs • family support programs (formerly AFDC until welfare reform of 1996) • medicaid • food stamps • Earned Income Tax Credit (EITC) • Social Insurance Programs • social security • medicare • unemployment insurance

  15. Two Welfare Reform Options

  16. Income Distribution in the U.S.

  17. Lorenz Curve

  18. Recent increase in income inequality (Gini Coefficient) • But why? • return to education is rising? • international trade? • productivity growth?

  19. Poverty Rate in the United States

  20. A View of World Income Inequality

  21. People Moving from Quintile to Quintile • About 60 percent of households move from one quintile to another quintile over a ten year span • About one-half of those in the bottom quintile move out of the bottom quintile • About one-half of those in the top quintile move out of the top quintile

  22. 1000 Points of Light?

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