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Standard 2 Understand the fundamental concepts relevant to the institutions, structure, and functions of a national economy SS.912.E.2.8 Differentiate between direct and indirect taxes, and describe the progressivity of taxes (progressive, proportional, regressive). - PowerPoint PPT PresentationTRANSCRIPT
Standard 2Understand the fundamental
concepts relevant to the institutions, structure, and
functions of a national economy
SS.912.E.2.8SS.912.E.2.8Differentiate between direct and Differentiate between direct and indirect taxes, and describe the indirect taxes, and describe the
progressivity of taxes (progressive, progressivity of taxes (progressive, proportional, regressive)proportional, regressive)
Video: Stossel is government too big?Video: Stossel is government too big?
Definitions:Definitions:Direct tax-Direct tax- a tax in which the payer remits a tax in which the payer remits the tax directly to the taxing agencythe tax directly to the taxing agencyExamples- license tag, non-escrowed Examples- license tag, non-escrowed property taxes, tollsproperty taxes, tollsIndirect tax-Indirect tax- a tax in which the payer a tax in which the payer remits the tax through an intermediary to remits the tax through an intermediary to the taxing agencythe taxing agencyExamples- sales tax, phone tax, payroll Examples- sales tax, phone tax, payroll taxtax
The The average tax rateaverage tax rate equals tax liability divided by equals tax liability divided by taxable income.taxable income.
– A A progressive taxprogressive tax is one in which the is one in which the average tax rate average tax rate risesrises with income. with income.
– A A proportional taxproportional tax is one in which the is one in which the average tax rate average tax rate stays the samestays the same across across income levels.income levels.
– A A regressive tax regressive tax is one in which the is one in which the average tax rate average tax rate fallsfalls with income. with income.
Average Tax Rate
Marginal tax rateMarginal tax rate: : calculated as calculated as the change in tax liability the change in tax liability divided by the change in taxable income.divided by the change in taxable income.
The marginal tax rate is highly important The marginal tax rate is highly important because it determines how much of an because it determines how much of an additional dollar earned must be paid additional dollar earned must be paid in taxes (and therefore, how much one in taxes (and therefore, how much one gets to keep). In this way, the marginal gets to keep). In this way, the marginal tax rate directly impacts an individual’s tax rate directly impacts an individual’s incentive to earn.incentive to earn.
Marginal Tax Rate
Marginal Tax Rate2006 Tax Table Continued
If line 40(taxableincome) is
And you are
Atleast
Butlessthan
Single Marriedfilingjointly
Marriedfilingseparately
Head of a house-hold
$32,000
Your tax is …
32000320503210032150
32200322503230032350
32400324503250032550
32050321003215032200
32250323003235032400
32450325003255032600
4564457645894601
4614462646394651
4664467646894701
4049405640644071
4079408640944101
4109411641244131
4564457645894601
4614462646394651
4664467646894701
4266427442814289
4296430443114319
4326433443414349
• An excerpt from the 2006 federal income tax table is shown here.• Note, for single individuals,
as income increases from $32,000 to $32,100 …
• In this range, what is the individual’s marginal tax rate?
• What is the individual’s average income tax rate?
their tax liability increases from $4,564 to $4,589.
Historical marginal tax rates.pdf
Tax rateTax rate::the rate (%) at which an activity is taxed.the rate (%) at which an activity is taxed.
Tax baseTax base:: the amount of the activity that is taxed.the amount of the activity that is taxed.– The tax base is inversely related to the The tax base is inversely related to the
rate at which the activity is taxed.rate at which the activity is taxed.
Tax revenues:Tax revenues:tax rate multiplied by tax base.tax rate multiplied by tax base.
Tax Rate and Tax Base
True or False?True or False?
The top 1% of income earners pay over The top 1% of income earners pay over one-third of total IRS taxes received.one-third of total IRS taxes received.
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Focus: Understanding Economics in Civics and Focus: Understanding Economics in Civics and GovernmentGovernment
Lesson 7 Taxes Change BehaviorLesson 7 Taxes Change Behavior
Mankiw(NYT)-I_can_afford_higher_taxes.pdf
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