Taxation 1 Flashcards
Tax
Payment required by a government that is unrelated to any specific benefit or service
Sin taxes
Taxes imposed on the purchase of goods that are considered less socially acceptable (alcohol/tobacco)
What qualifies as a tax?
Payment must be:
- Required
- Imposed by a government agency
- Not tied directly to the benefit received by the taxpayer
Earmarked tax
Tax that is assessed for a specific purpose (education)
Tax base
The item that is being taxed
Tax rate
The level of taxes imposed on the tax base - usually as a %
Flat tax
A tax un which a single tax rate is applied throughout the tax base
Graduated taxes
Taxes in which the tax base is divided into a series of amounts (brackets) where each bracket is taxed at a different %
Brackets
A subset of the tax base that is subject to a specific tax rate
Marginal tax rate
The incremental tax paid on an incremental amount of additional income or deductions
Marginal tax rate equation
Change in tax / change in taxable income = (new total tax - old total tax) / (new total - old total)
“Old” tax
Current tax
“New” tax
Revised tax after incorporating additional income or deductions
Average tax rate
Taxpayers average level of taxation on each dollar of taxable income
Effective tax rate
Taxpayers average rate of taxation on each dollar of total income including taxable and non-taxable
Proportional tax rate structure
AKA flat tax - imposes a constant rate of tax rate throughout the tax base.
As tax base increases, so for the taxes paid
Progressive tax rate structure
Imposes an increasing marginal tax rate as the tax base increases
Regressive tax rate structure
Imposes a decreasing marginal tax rate as the tax base increases
Value-added tax
Imposed on the producer of goods based on the value added at each stage of production - common in Europe
Income tax
Tax base is income - imposed by fed govt and most states
Most significant tax assessed
Levied on individuals, corps, estates, and trusts
Employment taxes
Consist of Old Age, Survivors, and Disability Insurance (SSN tax) and Medical Health Insurance (Medicare tax)
SSN tax
Intended to provide basic pension coverage for the retired and disabled at a rate of 6.2% on the wage base
Medicare tax
Intended to help pay medical costs for qualifying individuals
Self-employment tax
SSN and Medicare taxes paid by the self-employed on a taxpayer’s net earnings (FICA taxes)
Unemployment taxes
Tax that pays for temporary unemployment benefits for individuals terminated from their jobs without cause
Excise taxes
Levied on the retail sale of particular goods - tax base depends on QUANTITY rather than monetary amount
Transfer taxes
Taxes in transfer of wealth from one taxpayer to another
Estate tax
Tax paid for an estate
Sales tax
Tax imposed on the retail price of goods
Use tax
imposed on the retail price of goods owned, possessed, or consumed within a state that were not purchased within the state
Real property taxes
Tax on the FMV of land and structures permanently attached to land
