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19 Cards in this Set
- Front
- Back
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Tax policy
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government's attitude, objectives, and actions with respect to its tax system
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Standard 1 for a good tax:
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A good tax should be sufficient to raise the necessary government revenues
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Standard 2 for a good tax:
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A good tax should be convenient for the government to administer and for people to pay
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Standard 3 for a good tax:
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A good tax should be efficient in economic terms
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Standard 4 for a good tax:
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A good tax should be fair
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Static Forecast
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increase in rate increases revenue proportionaly. Assumes base is independent of the rate
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Dynamic Forecast
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correlation between rate and base
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Income Effect
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Taxpayers engage in more income producing activities to maintain their disposable income
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Substitution Effect
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Behavioral response to an income tax rate increase. Taxpayers engage in fewer income producing activities and more leisure activities
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Supply-Side Economics
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Decrease in highest income tax rates should stimulate economic growth and result in increased government revenues.
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Negative externalities
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byproducts of free enterprise: ie pollution. taxes imposed to avert these
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Tax preferences
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incentives to encourage certain behaviors
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Horizontal Equity
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taxpayers with same income and same ability to pay same taxes are taxed at the same rate. Taxpayers with equal bases pay same rate.
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Vertical Equity
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Taxpayers with greater base owe more tax
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regressive rate structure
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rates that decrease as base increases. Sales tax are regressive as income increases for wealthy taxpayers
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Proportionate rate structure
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a single rate against all incomes
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Progressive rate structure
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Rates increase as income increases
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Declining marginal utility of income
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each dollar importance declines as total income increases
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marginal rate
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rate that applies to next dollar of income
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