HONORS ECONOMICSTAXATION

GOVERNMENT = ORGANIZED CRIME PROTECTION FOR MONEY

ROVING BANDITS – TAKE 100% OF THE WEALTH TAKE THE MONEY & RUN

STATIONARY BANDITS – TAKE LESS THAN 100%

GOVERNMENT AS ORGANIZED CRIME

ARE AMERICANS OVERTAXED?

DEADWEIGHT LOSSESTAXES INCREASE PRICE OF GOODS & SERVICES

TAXING WAGES HIGHER PRICE FOR LABORTAXING CAPITAL HIGHER COST OF INVESTMENT

HIGHER PRICE LOWER QUANTITY DEMANDED REDUCTION IN SUPPLY LESS ECONOMIC ACTIVITY / LOWER GROWTH

TAX RATE

INCOME

CURRENT BUDGET

LAFFER CURVEGOVERNMENTS WANT TO MAXIMIZE REVENUES

REVENUES = TAX RATE * ECONOMIC ACTIVITYHIGHER TAXES LESS ECONOMIC ACTIVITY

LOWER NET REVENUE CUTTING TAXES MORE ECONOMIC ACTIVITY

HIGHER NET REVENUES

VERTICAL AND HORIZONTAL EQUITYHOW DO YOU KNOW IF TAXES ARE FAIR?

VERTICAL EQUITY – SHOULD DIFFERENT INDIVIDUALS BE TAXED SIMILARLY OR DIFFERENT

• BENEFIT PRINCIPLE – TAXED RELATIVE TO BENEFITEx. TOLL ROADS, HUNTING LICENSES, SSI EXEMPTIONS

• ABILITY TO PAY PRINCIPLE – HIGHER INCOME = HIGHER TAX RATE**********************************

PROGRESSIVE : BURDEN HEAVIER ON HIGHER INCOMESEx. INCOME & CORPORATE TAXES

REGRESSIVE: BURDEN HEAVIER ON LOW INCOMESEx. PAYROLL & CONSUMPTION TAXES

************************************

HORIZONTAL EQUITY: EQUAL INCOME = EQUAL TAXES $1 EARNED TEACHING = $1 EARNED NURSING

$1 SPENT ON CIGARETTES = $1 SPENT ON CANDY

EFFECTIVE CORPORATE TAX RATES ON DIFFERENT SECTORS, 1981AVERAGE 20.5 %

CAPITAL-INTENSIVE SECTORSMINING 9.4 %PAPER & LUMBER 4.0 %TRANSPORTATION -4.8 %UTILITIES 11.5 %AEROSPACE 13.5 %CHEMICALS 13.6 %

LABOR-INTENSIVE SECTORSPUBLISHING & PRINTING 36.3 %TOBACCO 31.4 %FOOD RETAILERS (GROCERY STORES) 30.8 %NON FOOD RETAIL (DEPARTMENT STORES) 22.0 %

HIGH TECHNOLOGYELECTRONICS & APPLIANCES 29.3 %OFFICE EQUIPMENT 26.7 %

FINANCIAL COMMERCIAL BANKS -12.6 %

TYPES OF TAXESINCOME TAXES: (PROGRESSIVE) TAXES PROFITS OR NET INCOME FUNDS

FEDERAL DISCRETIONARY REVENUESPAYROLL 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

TYPE PROGRESSIVE/REGRESSIVE? WHAT DOES IT PAY FOR?

INCOME PROGRESSIVE GENERAL EXPENSES (DISCRETIONARY)

PAYROLL REGRESSIVE SOCIAL SECURITY; MEDICAID; MEDICARE (ENTITLEMENTS)

CORPORATE PROGRESSIVE GENERAL EXPENSES (DISCRETIONARY)

PROPERTY MIXED SCHOOL, FIRE & POLICE PROTECTION

CONSUMPTION (VAT, SALES) REGRESSIVE STATE & LOCAL GOVERNMENT SERVICES

EXCISE REGRESSIVE ROADS, HIGHER EDUCATION, HEALTH CARE

USER FEES MIXED FEE FOR SERVICE

(HIGH) INFLATION PROGRESSIVE EMPLOYMENT

(HIGH) INTEREST RATE REGRESSIVE INVESTMENT

ARE AMERICAN TAXES FAIR?

CORPORATE INCOME TAXESBUSINESSES 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

CAPITAL GAINS TAXESCAPITAL GAIN = APPRECIATION IN VALUE IN AN ASSET

(STOCK) BETWEEN BUYING & SELLING

CONSERVATIVES “DOUBLE TAXATION” BECAUSE THEY ARE TAXED AS BOTH

a) 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

PIGOVIAN & EXCISE TAXESWHEN 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 DYINGYOU MAY ALSO TAX TO DISCOURAGE BEHAVIOR – FINES,

SPEEDING TICKETS, CARBON & CALORIE TAXESPIGOVIAN TAX: HIGHER TAXES = HIGHER SOCIAL

WELFARE ***********************************

TAX EXPENDITURE: TAX DEDUCTIONS TO ENCOURAGE BEHAVIOR: MORTGAGE INTEREST, HEALTH BENEFITS, EDUCATIONAL COSTS