1:2 The characteristics of a "good tax" Flashcards Preview

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Flashcards in 1:2 The characteristics of a "good tax" Deck (18)
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1

What are the 4 cannons of taxation?

Equitable - fair in its impact
Certain - how much you pay
Convenient - easy for taxpayers to pay
Economically efficient - cost as little to administer/ apply as possible

2

What are other features of a good tax system? (2)

Simplicity
Flexibility - adjust to the economic situation

3

What is attribution theory?

Where you attribute your behaviour based on what people around you are getting away with.

4

Horizontal equity?

Similar positions, taxed in similar ways

5

Vertical equity?

Different positions, taxed in different ways

6

Problems with horizontal equity (3)

Difficult to apply because:

How do you determine same position? e.g. income v wealth
Who says what is comparable - comparing earned with investment income
What about timing - over what period of time should tax burden equate?

7

Problems with Vertical equity (4)

Who decides who pays tax at different rates?
How are differences to be measured?
How much should the difference be?
How can a tax system be designed to ensure this difference is reflected and maintained

8

What is the benefit approach?

Taxes are levied in proportion to the benefit received
Could be used as an earmarked tax (specific purpose)

9

What is the ability to pay approach?

People pay what they are able to pay which leads to vertical equity and a progressive tax system

10

Certainty

The taxpayer should know how much tax they are paying and it should not be arbitrary.

11

Convenience

Taxes should be levied at a time and place that are the most convenient for the taxpayer

12

Efficiency (2)

Effective collection mechanism to maximise the amount of tax for the government

A tax that does not distort economic decisions of taxpayers.

13

Flexibility

Designed to change or be easy to change as economic circumstances change

14

What happened with the Poll tax

A community charge that taxed all people over 18 living in the community introduced by Margaret Thatcher which lead to riots because the tax was considered unfair.

15

Advantages and Disadvantages of Income as a tax base (4) (4)

Equitable
Progressive
Flexible
Ability to pay

Definition of income
Progressive
Disincentive to work
Complex

16

Advantages and Disadvantages of Consumption as a tax base (4) (2)

Equity
Impact on savings
Incentive to work
Simplicity

Ability to pay
Regressive

17

How is wealth taxed? (3)

Investment income derived from wealth
On capital value of assets
On disposal of assets

18

Does taxing wealth work?

What is wealth and how to measure it?
Equity and ability to pay- asset rich is different to cash rich
Do capital taxes distribute wealth
Investment decisions - distorts decisions
Inefficient - difficult to collect & distorts decisions
Complex