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HONORS ECONOMICS TAXATION

HONORS ECONOMICS TAXATION. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. $. GOVERNMENT AS ORGANIZED CRIME. GOVERNMENT = ORGANIZED CRIME  PROTECTION FOR MONEY ROVING BANDITS – TAKE 100 % OF THE WEALTH TAKE THE MONEY & RUN

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HONORS ECONOMICS TAXATION

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  1. HONORS ECONOMICS TAXATION

  2. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

  3. GOVERNMENT AS ORGANIZED CRIME GOVERNMENT = ORGANIZED CRIME  PROTECTION FOR MONEY ROVINGBANDITS – TAKE 100% OF THE WEALTH TAKE THE MONEY & RUN STATIONARYBANDITS – TAKE LESS THAN 100%

  4. ARE AMERICANS OVERTAXED?

  5. INCOME DEADWEIGHT LOSSES TAXES INCREASE PRICE OF GOODS & SERVICES TAXING WAGES  HIGHER PRICE FOR LABOR TAXING CAPITAL  HIGHER COST OF INVESTMENT HIGHER PRICE  LOWER QUANTITY DEMANDED  REDUCTION IN SUPPLY LESS ECONOMIC ACTIVITY / LOWER GROWTH TAX RATE

  6. CURRENT BUDGET

  7. LAFFER CURVE GOVERNMENTS WANT TO MAXIMIZE REVENUES REVENUES = TAX RATE * ECONOMIC ACTIVITY HIGHER TAXES  LESS ECONOMIC ACTIVITY  LOWER NET REVENUE CUTTING TAXES  MORE ECONOMIC ACTIVITY  HIGHER NET REVENUES

  8. EFFECTIVE CORPORATE TAX RATES ON DIFFERENT SECTORS, 1981 • AVERAGE 20.5 % • CAPITAL-INTENSIVE SECTORS • MINING9.4 % • PAPER & LUMBER4.0% • TRANSPORTATION-4.8% • UTILITIES11.5% • AEROSPACE13.5% • CHEMICALS13.6 % • LABOR-INTENSIVE SECTORS • PUBLISHING & PRINTING36.3 % • TOBACCO31.4 % • FOOD RETAILERS (GROCERY STORES)30.8% • NON FOOD RETAIL (DEPARTMENT STORES)22.0 % • HIGH TECHNOLOGY • ELECTRONICS & APPLIANCES29.3 % • OFFICE EQUIPMENT26.7 % • FINANCIAL • COMMERCIAL BANKS-12.6% VERTICAL AND HORIZONTAL EQUITY HOW DO YOU KNOW IF TAXES ARE FAIR? VERTICAL EQUITY – SHOULD DIFFERENT INDIVIDUALS BE TAXED SIMILARLY OR DIFFERENT • BENEFIT PRINCIPLE – TAXED RELATIVE TO BENEFIT Ex. TOLL ROADS, HUNTING LICENSES, SSI EXEMPTIONS • ABILITY TO PAY PRINCIPLE – HIGHER INCOME = HIGHER TAX RATE ********************************** PROGRESSIVE : BURDEN HEAVIER ON HIGHER INCOMES Ex. INCOME & CORPORATE TAXES REGRESSIVE: BURDEN HEAVIER ON LOW INCOMES Ex. PAYROLL & CONSUMPTION TAXES ************************************ HORIZONTAL EQUITY: EQUAL INCOME = EQUAL TAXES $1 EARNED TEACHING = $1 EARNED NURSING $1 SPENT ON CIGARETTES = $1 SPENT ON CANDY

  9. TYPES OF TAXES INCOME TAXES: (PROGRESSIVE) TAXES PROFITS OR NET INCOME  FUNDS FEDERAL DISCRETIONARY REVENUES PAYROLL TAXES: (REGRESSIVE) TAXES EARNINGS FOR NON-DISCRETIONARY ENTITLEMENT PROGRAMS SUCH AS SOCIAL SECURITY & MEDICAID PROPERTY TAXES: (REGRESSIVE) TAXES THE ASSESSED VALUE OF ASSETS INCLUDING REAL ESTATE FOR LOCAL GOVERNMENT EXPENSES SUCH AS SCHOOLS, FIRE, & POLICE DEPARTMENTS EXCISE TAXES: (REGRESSIVE) “SIN” TAXES THAT TARGET CONSUMPTION OF SPECIFIC ITEMS SUCH AS TOBACCO, ALCOHOL, & IMPORTED GOODS. SALES TAXES: (REGRESSIVE) TAXES SPENDING TO SUPPORT STATE & LOCAL GOVERNMENTS USER FEES: TAXES SPECIFIC GOVERNMENT SERVICES  TOLL ROADS (THRUWAY / BRIDGES), LICENSES (HUNTING / DRIVING) INFLATION & INTEREST RATES : (PROGRESSIVE/REGRESSIVE) INFLATION SHIFTS WEALTH FROM CREDITORS  DEBTORS INTEREST RATES SHIFT WEALTH DEBTORS CREDITORS

  10. ARE AMERICAN TAXES FAIR?

  11. CORPORATE INCOME TAXES BUSINESSES ORGANIZE AS PARTNERSHIPS OR LIMITED LIABILITY CORPORATIONS CORPORATIONS ARE “LEGAL INDIVIDUALS” THAT SHIELD OWNERS (STOCKHOLDERS) FROM BUSINESS DEBTS & LOSSES ************** FOR THIS PRIVILEGE, GOVERNMENTS CHARGE A “FEE” BY TAXING CORPORATE PROFITS LIKE INDIVIDUAL INCOME *************** HIGHER TAXES  DISINCENTIVE TO INVESTMENT, CAPITAL ACCUMULATION & ECONOMIC GROWTH **************** THEREFORE, GOVERNMENTS HAVE CUT CORPORATE TAXES TO PROMOTE ECONOMIC GROWTH

  12. CAPITAL GAINS TAXES CAPITAL GAIN = APPRECIATION IN VALUE IN AN ASSET (STOCK) BETWEEN BUYING & SELLING CONSERVATIVES  “DOUBLE TAXATION” BECAUSE THEY ARE TAXED AS BOTH • CORPORATE INCOME b) CAPITAL GAINS HOWEVER . . . • INDIVIDUALS CAN TIME WHEN TO “REALIZE” A CAPITAL GAIN BY CHOOSING WHEN THEY MONETIZE (SELL) THEIR ASSET • CAPITAL GAINS TAXED LOWER THAN INCOME  INVESTORS PAY LOWER TAXES THAN WAGE EARNERS • CAPITAL DEPRECIATION / LOSSES ARE BOOKED CONTINUOUSLY BY A STATUTORY AVERAGE  SIGNIFICANT TAX ADVANTAGES

  13. PIGOVIAN & EXCISE TAXES WHEN A DEMAND CURVE IS VERTICAL, CHANGES IN PRICE WILL NOT CHANGE THE QUANTITY DEMANDED “SIN TAXES” (EXCISE TAXES) ON ADDICTIVE BEHAVIOR : TOBACCO, ALCOHOL, GASOLINE & GAMBLING = GOOD REVENUE SOURCES INHERITANCE TAXES  CANNOT AVOID DYING YOU MAY ALSO TAX TO DISCOURAGE BEHAVIOR – FINES, SPEEDING TICKETS, CARBON & CALORIE TAXES PIGOVIAN TAX: HIGHER TAXES = HIGHER SOCIAL WELFARE *********************************** TAX EXPENDITURE: TAX DEDUCTIONS TO ENCOURAGE BEHAVIOR: MORTGAGE INTEREST, HEALTH BENEFITS, EDUCATIONAL COSTS

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