Chapter 1 Flashcards
Taxes levied on the retail sale of particular products
excise taxes
Taxes directly imposed by a government and easily quantified
explicit taxes
A single tax applied to an entire base
flat tax
Taxes based on the fair market values of wealth transferred by gift
gift tax
Tax applied by dividing a tax base into a series of monetary amounts (brackets) and each successive bracket is taxed at a different percentage rate
graduated taxes
Means that two taxpayers in similar situations pay the same tax
horizontal equity
Indirect taxes– not paid directly to the government. They result from government grants to certain transactions to satisfy social, economic, or other objectives.
implicit taxes
Predicts that when taxpayers are taxed more, they will work harder to generate the same after tax dollars.
income effect
The most significant tax assessed on an individual (represents 49.8% of all tax revenue collected in 2018).
income tax
Taxes used to fund local government activities (e.g. income, sales and use, excise and property taxes). Largest % individual income and state sales taxes
local tax
The tax rate that applies to the next additional increment of a taxpayer’s taxable income.
MTR=New Total Tax-Old Total Tax/ New taxable income- Old taxable income
marginal tax rate
Pays for medical insurance for individuals who are elderly or disabled
medicare tax
An ad valorem tax. The tax base for each is the fair market value of the property, and both are generally collected annually (when imposed). All property that is not real property, both tangible and intangible.
personal property tax
An ad valorem tax. he tax base for each is the fair market value of the property, and both are generally collected annually (when imposed). Related to land, structures and improvements permanently attached to land.
real property tax
Imposes a decreasing marginal tax rate as the tax base increases (Social security and federal and state unemployment taxes)
regressive tax rate structure
The tax on the retail price of goods and some services.
sales tax
Se;f employed individuals pay the full 12.4 % SS and 2.9% Medicare tax from their wages or salary– these are split between employer and employee usually.
self-employment tax
Taxes that discourage other legal activity (i.e.impose relatively high surcharges on alcohol and tobacco products).
sin taxes
Pay the monthly retirement, survivor and disability benefits for qualifying individuals
Social Security tax
Taxes used to fund state government activities (e.g. income, sales and use, excise and property taxes). Largest % individual income and state sales taxes
state tax
Forecasting tax revenues based on the existing state of transactions, that doesn’t account for how taxpayers may alter their activities in response to a tax law change
static forecasting
Predicts that when taxpayers are taxed more, rather than work more, they will substitute nontaxable activities like leisure pursuits for taxable ones because the marginal value of taxable activities has decreased.
substitution effect
A tax system that generates enough tax revenue
sufficiency
A payment required by a government that is unrelated to any specific benefit or service received by the government. Main purpose to fund the operations of the government (i.e. raise revenue)
tax
What is actually taxed (expressed in monetary terms). Examples: taxable income, purchases, real estate values, personal property values.
tax base
The level of taxes imposed on a tax base (expressed as a percentage)
tax rate
Taxes imposed by the federal government on estates and gifts. Based on the fair market values of wealth being transferred. Max gift tax rate is 40%.
transfer taxes
Taxes that fund temporary unemployment benefits for individuals terminated from their job without cause.
unemployment taxes
Taxes on the retail price of goods owned,possessed or consumed within a state that were not purchased within the state. Used to discourage taxpayers from buying goods outside the state to avoid or minimize the sales tax in their home state.
use tax
Imposed on producers of goods and services based on the value added to goods and services at each stage of production (common in Europe)
value-added tax
Achieved when taxpayers with greater ability to pay taxes pay more taxes than taxpayers with less ability to pay.
vertical equity
A taxpayer’s average level of taxation on each dollar of taxable income= Total tax/ taxable income
Average tax
A taxpayer’s average rate of taxation on each dollar of total income, including taxable and nontaxable income.
Effective tax rate
Imposes a constant tax rate throughout the tax base (i.e. sales tax)
Proportional tax rate structure (flat tax)
Imposes an increasing marginal tax rate as the tax base increases (i.e. federal and state income tax)
Progressive tax rate structure
