Role of Income tax Flashcards
Role of income tax
Raise Revenue, redistribute income, reprice goods and services
Raising Revenues
in 2013 47% revenue collected was through income tax
Redistribute income
Progressive, graduated rates, deductions, exemptions, EITC
Reprice goods/services
excise tax and tax credits
Factors of tax system
equitable, efficiency
benefit principle:
taxes should depend your your use (Water), hard to measure use of national defense
ability to pay principle
as income goes up so does your ability to pay. Idea of declining marginal utility of income
Declining marginal value of income
the more income you have, the less valuable a dollar is to you
Efficiency: Economic concept:
tax code decreases return on labor & savings which impacts economic growth, excise tax and credits, negative externalities, positive externalities
excise tax
reprices cost of good upwards, we want to discourage (smoking)
tax credits
sections 21-53: lowers price, we want to encourage (hybrid cars)
negative externalities
pass on cost to everyone else (gas guzzlers) that’s why we want government involved
deficits are:
tax hikes on future generations