Ch9 Taxes

Question 1

Resource allocation

Answer 1

Factors of production are affected by taxes

Tax placed on a good raises the cost of production

Question 2

Sin tax

Answer 2

Relatively high tax to raise revenue and reduce bad behavior
Ex- liquor and tobacco

Question 3

Incidence of tax

Answer 3

Final burden of a tax

Group that ultimately pays for the tax

Question 4

3 criteria for effective taxes

Answer 4

1. Equity- everyone pays same, or proportional to their income
2. Simplicity- tax payer and collector should understand taxes
3. Efficiency- easy to administer and generate revenue

Question 5

Tax loopholes

Answer 5

Exceptions in tax law that allow some people and businesses to avoid paying taxes

Question 6

Individual income tax

Answer 6

Tax on people’s earnings

Employer withholds the tax and sends it to the IRS

Question 7

Two principles of taxation

Answer 7

Benefit principle

Ability to pay principle

Question 8

Benefit principle

Answer 8

Those who benefit from govt goods should pay in proportion to what they receive
Ex- gas tax: those who drive more pay more tax to maintain roads

Question 9

Two problems with benefit principle

Answer 9

1. Many govt services benefit those who cannot pay for them

2. Benefits are often hard to measure

Question 10

Ability to pay principle

Answer 10

People should be taxed according to what they are able to pay

Question 11

Proportional tax

Answer 11

Same percentage tax rate on everyone

Question 12

Progressive tax

Answer 12

Higher percentage rate tax on people with higher incomes

- tax increase as income increases

Question 13

Regressive tax

Answer 13

Higher percentage rate tax on low incomes than on high incomes
-state sales tax on food and clothing

Question 14

Largest source of government revenue

Answer 14

Individual income tax

50% of govt revenue

Question 15

Payroll withholding system

Answer 15

Requires employers to automatically deduct income taxes from your paycheck and send it to govt

Question 16

IRS-international revenue service

Answer 16

branch of the US treasury dept in charge of collecting taxes

Question 17

Tax return

Answer 17

Annual report to the irs summarizing total income, deductions and taxes withheld by employers

Question 18

FICA- federal insurance contributions act

Answer 18

2nd largest federal tax

Tax pays for social security and Medicare

Question 19

Payroll tax

Answer 19

Deducted from your paycheck

Question 20

Social security tax

Answer 20

Proportional tax capped at 118000 then everyone pays the same

Question 21

Medicare

Answer 21

Federal healthcare program available to all senior citizens

Question 22

Corporate income tax

Answer 22

3rd largest govt tax revenue

- tax a corporation pays on its profits

Question 23

Excise tax

Answer 23

Tax on manufacture or sale of items
-gas, tobacco, liquor
Typically a regressive tax

Question 24

Luxury good

Answer 24

Demand for the good rises faster than income

Question 25

Estate tax

Answer 25

Govt tax on the transfer of property when a person dies | -exempt if less than 1 million

Question 26

Gift tax

Answer 26

Tax on donations of money and paid by the person who makes the gift -used to make sure wealthy people can't avoid taxes by giving their things away before they die

Question 27

Intergovernmental revenue

Answer 27

Funds collected by the federal govt and distributed to the state govt

Question 28

Sales tax

Answer 28

percentage of the purchase price added to the final price | - 5 states don't have sales tax

Question 29

Property tax

Answer 29

Tax on tangible and intangible possessions | -real estate,buildings,stocks,bank accounts

Question 30

Tax assessor

Answer 30

Person who assigns value to property for tax purposes

Question 31

Payroll withholding statement

Answer 31

summary attached to your paycheck :income tax,withholding and deductions