Chapter 9 Flashcards
sin tax
a relatively high tax designed to raise revenue and reduce consumption of a socially undesirable product such as liquor or tobacco
incidence of a tax
final burden of the tax
tax loopholes
exceptions or oversights in the tax law that allow some people and businesses to avoid paying taxes
individual income tax
the tax on people’s earnings
sales tax
a general tax levied on most consumer purchases
efficiency
tax should be relatively easy to administer and reasonably successful at generating revenue
Benefit Principle of Taxation
those who benefit from government goods and services should pay in proportion to the amount of benefits they receive
Ability to Pay Principle of Taxation
the belief that people should be taxed according to their ability to pay
Proportional Tax
same % of taxation on everyone
average tax rate
total taxable income divided by the total revenue
Progressive Tax
higher % rate of taxation on people with higher income
marginal tax rate
the tax rate that applies to the next dollar of taxable income
Regressive Tax
higher % rate of taxation on people with lower income
payroll withholding system
a system that requires an employer to automatically deduct income taxes from an employee’s paycheck and send it directly to the gov’t
IRS
branch of US Treasury Department in charge of collecting taxes
