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Understanding Taxation: Principles, Types, and Importance

Explore the principles of taxation, tax structures, and types of taxes. Learn why taxation is crucial for society and how it impacts individuals and governments. Discover how taxes are levied and distributed based on ability-to-pay and benefits received principles.

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Understanding Taxation: Principles, Types, and Importance

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  1. Taxation

  2. Taxes “In this world, nothing is certain but death and taxes.” – Ben Franklin “Taxation is the price we pay for civilization.” – SC Justice Oliver Wendell Holmes “No taxation without representation.” – framers of the US Constitution

  3. Adam Smith’s Principles on Taxation • Wealth of Nations , 1776(father of modern capitalism) • Equity – believed the rich should pay a higher tax than the poor • Simplicity – tax laws should be straight forward • Efficiency – maximum gain for gov’t while inflicting minimal loss on taxpayers

  4. Who should pay and why? Ability-to-pay principle– people should be taxed according to their income (rich taxed more and poor taxed less)….Fed/state income taxes are based on this

  5. Warm up 1/16/15 What are the 3 principles of taxation that Adam Smith believed are essential? What are the 6 purposes of government?

  6. Who should pay and why? Benefits received principle – if you benefit from a program, you should pay for it (e.g. if you drive you should pay for the upkeep of our highway system)

  7. Tax Structure • Proportional Tax– takes the same share of income at all income levels (e.g. Property/School tax)

  8. Progressive Tax– takes a larger share of income as income increases (e.g. Income Tax)

  9. 3. Regressive Tax– takes a smaller share of income as income increases (e.g. Sales Tax- poor pay more of their income in sales tax than the rich)

  10. Tax Base and Tax Rate • Tax Base: the thing that is taxed • Ex. Property, good, income, revenues • Tax Rate: the percentage of income- of value of good/service- that is taxed • Ex. Income tax rate=20% you pay 20% of income in taxes. • Ex. If Sales tax is 6%, you pay 6% of total purchase in sales tax.

  11. Excise/Luxury Taxes (Sin taxes) Toll Tax Social Security Taxes Estate/Inheritance Taxes Property Taxes Sales Taxes Income Taxes

  12. Excise/Luxury Taxes (Sin taxes) User fees/tolls Payroll Taxes Estate/Inheritance Taxes Property Taxes Sales Taxes Income Taxes

  13. Copy and Complete

  14. Copy and Complete

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