The role of government & taxation Flashcards
What are the things that Galbraight
argued should be provided by the state?
- low-cost housing
- health care
- parks
- recreational facilities
- police
- libraries, etc.
What is welfare state?
Welfare state is a political system based on the premise that the government has the responsibility for the well-being of its citizens, by ensuring a minimum standrd of living for everyone.
Advantages of welfare-state
- Minimum standard of living provided for everyone (including the underclass)
- Social protection
- Support of scientific research that doesn’t promise short-run profit
- Protection of the environment
Disadvantages of welfare-state
- High taxes
- No “freedom to choose how to use our income”
- No “freedom to use the resources we possess in accordance with our own values”
- Government intrusion in personal life, decision-making
What does Friedman think of government role in economy?
He claims that government should eliminate restrictions on economic freedoms.
Two essential parts of economic freedom are:
- freedom to use our resources in the way we can benefit from them the most
- freedom to choose how to use our income
He admits some restrictions are necessary but in his view we have gone too far, and also believes anything that reduces freedom in one part of our lives affects freedom in other parts.
Taxation…
…are means by which government finance their expenditure by imposing charges on citizens and corporate entities
Government can..
- levy a tax
- impose a tax
- collect a tax
- raise revenue through taxation
People or companies can..
- be liable to pay a tax
- evade a tax
- file a tax return
- avoid a tax
- pay a tax on their income
Tax evasion is…
…an illegal practice where a person or entity intentionally does not pay due taxes. (not reporting income, not paying taxes owed)
Tax avoidance is…
…legal methods used bya taxpayer to minimize the amount of income tax owed. (taking tax credits, setting up tax deferral plans)
default
to be unable to pay a loan
enforce the law
ensuring obedience to the law
austerity plan
a government´s efforts to reduce public spending to try to shrink budget deficits
bailout
the act of offering financial assistance to failing business or economy to prevent itfrom going bankrupt
shadow economy
business that is legal but off the books
tax revenue
the income that is gained by government through taxation
tax system
a legal system for assessing and collecting taxes in a country
tax compliance
how much taxpayers obey the tax laws of a country
tax exemption
freedom from a certain tax usually given by governements to encourage some types of activities or businesses
Classification of
taxes
- Depending on the tax rate:
Progressive tax, regressive tax and proportional (or flat) tax - Depending on who pays the tax:
Direct tax and indirect tax
Progressive tax
A tax levied at a higher rate on higher income. (income tax)
Regressive tax
A tax that takes a larger percentage of income from low-income people than from high-income people. It is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder. (VAT-value added tax)
Proportional (flat) tax
A system that taxes everyone at the same rate, regardless of their income bracket. (income tax). Supporters of this type of tax argue that it gives people an incentive to earn more, because they are not penalized by moving up to a higher tax bracket (as they would in a progressive rate system).
Direct tax
A tax placed directly on an individual or business. (Income tax, capital gains tax, inheritance tax, wealth tax, national insurance)
Indirect tax
Taxes are levied on the production or consumption of goods and services or on transactions, including inports and exports. (VAT, sales tax, customs duty)
The main purpose of taxation…
…is to raise revenue for government spending.
A tax haven…
…is a country or place which has a low rate of tax so that people choose to live there or register companies there in order to avoid paying higher tax in their own countries.
Tax morale…
…refers to the willingnes of individuals and businesses to volontarily comply with tax obligations.
