Who cares about Taxes?
- Businesses
- Politicians
- Individuals
Tax
A payment required by the government that is unrelated to any specific benefit or service received from the government
Tax Base
Defines what is actually taxed (usually the $ value)
Tax Rate
Level of taxes imposed on the tax base (Usually the % value)
Marginal Tax Rate (Ways to Measure)
The tax rate that applies to the next additional increment of a taxpayer’s taxable income
Average Tax Rate (Ways to Measure)
The taxpayer’s average level of taxation on each dollar of taxable income
Effective Tax Rate (Ways to Measure)
The taxpayer’s average rate of taxation on each dollar of total income (both taxable and nontaxable)
Proportional Tax Rate (Flat Tax) (Structures)
Imposes a constant tax rate throughout the tax base
Progressive Tax Rate (Structures)
Imposes an increasing marginal tax rate as the tax base increases
Regressive Tax Rate (Structures)
Imposes a decreasing marginal tax rate as the tax base increases
Types of Taxes
- Federal Taxes
- State and Local Taxes
- Implicit Taxes
Federal Taxes
- Income Taxes
- Employment and Unemployment Taxes
- Excise Taxes
- Estate and Gift Taxes
Income Taxes (Federal)
- Represents approx. 60% of all tax revenues collected in the US
- Levied on individuals, corporations, estates, and trusts
Employment and Unemployment Taxes (Federal)
- 2nd largest group of taxes in US
- Includes OASDI (Social Security) and MHI (Medicare)
- Fund temporary unemployment benefits for individuals terminated form their jobs without cause
Excise Taxes (Federal)
- 3rd largest in US
- Levied on the quantity of products sold
Estate and Gift Taxes (Federal)
- Levied on the fair market value of wealth transfers upon death or by gift
State and Local Taxes
- Sales and Use Taxes
- Property Taxes
- Income Taxes
- Excise Taxes
Sales and Use Taxes (S<)
- Tax base for a sales tax is the retail sale of goods and some services
- Tax base for the use tax is the retail price of goods owned, possessed, or consumed within a state that were not purchased within the state
Property Taxes (S<)
- Property taxes are ad valorem taxes (the tax base for each is the fair market value of the property)
- Real property taxes consists of taxes on land and structures permanently attached to land
- Personal property taxes include taxes on all other types of property, both tangible and intangible
Income Taxes (S<)
- Most state taxable income calculations largely conform to the federal taxable income calculations, with a limited number of modifications
Excise Taxes (S<)
- States typically impose excise taxes on items subject to federal excise tax
Implicit Taxes
- Taxes that result from a tad advantage the government grants to certain individuals
- Difficult to quantify but important to understand in evaluating the relative tax burdens of tax-advantage investments
