1、Prepared by:FERNANDO QUIJANO,YVONN QUIJANO,KYLE THIEL&APARNA SUBRAMANIAN18Taxation in the United Statesand Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberPublic Finance and Public Policy,2/eJonathan GruberChapter 18 Taxation in the United States and Around
2、 the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan Gruber18.5 Externality/Public Goods Rationales for Deviating from Haig-Simons Taxation in the United States and Around the World18.3 Measuring the Fairness of Tax Systems18.2 Structure of the Individual Income Tax in the
3、United States18.1 Types of TaxationChapter 1818.4 Defining the Income Tax Base18.6 The Appropriate Unit of Taxation18.7 ConclusionChapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberTypes of Taxation18.1Taxes on Earn
4、ingspayroll tax A tax levied on income earned on ones job.Taxes on Individual Incomeindividual income tax A tax paid on individual income accrued during the year.capital gains Earnings fromselling capital assets,such asstocks,paintings,and houses.Chapter 18 Taxation in the United States and Around t
5、he World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberChapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberChapter 18 Taxation in the United States and Around the World 2007 Worth Publishe
6、rs Public Finance and Public Policy,2/e,Jonathan GruberTypes of Taxation18.1Taxation Around the WorldChapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberTypes of Taxation18.1Taxation Around the WorldChapter 18 Taxati
7、on in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2
8、/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Computing the Tax Basegross income The total of an individuals various sources of income.adjusted gross income(AGI)An individuals gross income minus certain deductions,for example,contributions to individual retirement
9、accounts.These adjustments have varied over time,but as of 2004 they include:Contributions to retirement savings through Individual Retirement Accounts(IRAs)or self-employed pension plansAlimony paid to a former spouseHealth insurance premiums paid by the self-employedOne-half of the payroll taxes p
10、aid by the self-employedChapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Computing the Tax Baseexemption A fixed amount a taxpayer can subtract from A
11、GI for each dependent member of the household,as well as for the taxpayer and the taxpayers spouse.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Co
12、mputing the Tax Basestandard deduction Fixed amount that a taxpayer can deduct from taxable income.There are two forms of deductions from which to choose:1.2.itemized deductions Alternative to the standard deduction,whereby a taxpayer deducts the total amount of money spent on various expenses,such
13、as gifts to charity and interest on home mortgages.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Computing the Tax BaseUnder the itemized deduction
14、s route,the taxpayer deducts from his or her income the sum of amounts from several categories:Medical and dental expenses exceeding 7.5%of AGIOther taxes paid,such as state or local income tax(or sales tax if the state has no income tax),real estate tax,and personal property taxInterest the taxpaye
15、r pays on investments and home mortgagesGifts to charityCasualty and theft lossesUnreimbursed employee expenses,such as union dues or expenses incurred on job traveltaxable income The amount of income left after subtracting exemptions and deductions from adjusted gross income.Chapter 18 Taxation in
16、the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Tax Rates and Taxes PaidChapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance a
17、nd Public Policy,2/e,Jonathan GruberStructure of the Individual Income Tax in the United States18.2Tax Rates and Taxes Paidtax credits Amounts by which taxpayers are allowed to reduce the taxes they owe to the government through spending,for example,on child care.withholding The subtraction of estim
18、ated taxes owed directly from a workers earnings.refund The difference between the amount withheld from a workers earnings and the taxes owed if the former is higher.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan Grub
19、erThe Coming AMT TimebombA P P L I C A T I O NAlternative Minimum Tax A tax schedule applied to taxpayers with a high ratio of deductions and exemptions to total income.Treasury Secretary Joseph W.Barr produced a list of 155 high-income households that in 1966 had earned over$200,000 but paid no inc
20、ome taxes whatsoever.They had simply taken advantage of existing tax laws to minimize their taxable income.In 1969,President Nixon signed into law a minimum tax intended to ensure that all wealthy households paid some amount of income tax.By 1986,659 wealthy American households still managed to avoi
21、d all income taxes,so Congress strengthened the law,now called the Alternative Minimum Tax.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberMeasuring the Fairness of Tax Systems18.3Average and Marginal Tax Ratesma
22、rginal tax rate The percentage that is paid in taxes of the next dollar earned.average tax rate The percentage of total income that is paid in taxes.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberMeasuring the F
23、airness of Tax Systems18.3Vertical and Horizontal Equityvertical equity The principle that groups with more resources should pay higher taxes than groups with fewer resources.horizontal equity The principle that similar individuals who make different economic choices should be treated similarly by t
24、he tax system.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberMeasuring the Fairness of Tax Systems18.3Measuring Vertical Equityprogressive Tax systems in which effective average tax rates rise with income.propor
25、tional Tax systems in which effective average tax rates do not change with income,so that all taxpayers pay the same proportion of their income in taxes.regressive Tax systems in which effective average tax rates fall with income.Chapter 18 Taxation in the United States and Around the World 2007 Wor
26、th Publishers Public Finance and Public Policy,2/e,Jonathan GruberThe Political Process of Measuring Tax FairnessA P P L I C A T I O NThere are several different ways to measure fairness,and politicians are likely to choose the one that best fits their agendas.An excellent example of this process is
27、 the income tax cuts proposed by President Bush and signed into law by Congress in 2003.Democratic critics pointed out that 44%of the tax reductions from this bill would go to the top 1%of taxpayers.The Bush administration acknowledged that fact but responded by pointing out that these top taxpayers
28、 already pay 38%of all income taxes.Democrats responded by highlighting that while the top 1%of taxpayers pay 38%of income taxes,they pay only 30%of all taxes,since our payroll tax system is less progressive than our income tax system.The administration fired back by noting that 34 million families
29、with children would receive an average tax cut of$1,549 each.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberDefining the Income Tax Base18.4The Haig-Simons Comprehensive Income DefinitionHaig-Simons comprehensiv
30、e income definition Defines taxable resources as the change in an individuals power to consume during the year.An individuals potential annual consumption is the individuals total consumption during the year,plus any increases in his or her stock of wealth.Two of the major difficulties with implemen
31、ting a Haig-Simons definition in the U.S.tax system are:(a)The difficulty of how to define a persons power to consume/ability to pay,and(b)How to deal with expenditures that are associated with earning a living and not personal consumption.Chapter 18 Taxation in the United States and Around the Worl
32、d 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberDefining the Income Tax Base18.4Deviations Due to Ability-to-Pay ConsiderationsThe desire to take into account expenditures that are not associated with desired consumption is the rationale for one of the major deductions fr
33、om taxable income allowed by the tax code,the deduction for property and casualty losses.Another major deduction that may be justified on ability-to-pay considerations is the deduction for medical expenditures.Another deduction that is often justified on ability-to-pay grounds is the deduction for s
34、tate and local tax payments.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberDefining the Income Tax Base18.4Deviations Due to Costs of Earning IncomeBecause the comprehensive income definition refers only to the
35、net increment to resources over the period,any legitimate costs of doing business should be deducted from a persons income.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberWhat Are Appropriate Business Deductions?
36、A P P L I C A T I O NThe difficulties in defining an appropriate,or inappropriate,business deduction are well illustrated by some classic examples from U.S.tax law:A high school geography teacher claimed a$5,047,six-month,18-country world tour as a business expense.The trip helped him,the teacher cl
37、aimed,to collect experiences and slides of exotic places to aid his teaching.The tax court disallowed the deduction,concluding that“any actual educational benefit gained from these experiences was de minimis.”A rabbi claimed as a business expense the$4,031 he spent on 700 guests who attended his son
38、s bar mitzvah.The rabbi claimed that his position obliged him to invite all 725 families from his congregation to the celebration.The tax court disagreed,finding that the rabbi“was not required to invite the entire membership of the congregation to Davids bar mitzvah service and reception as a condi
39、tion of his employment.”The entertainer Dinah Shore claimed several dresses as business expenses,prompting an investigation by the IRS.She argued that the gowns had been worn only onstage during her performances.In what is now called the“Dinah Shore ruling,”the IRS decreed that a dress may be deduct
40、ed as a business expense only if it is too tight to sit down in!Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberExternality/Public Goods Rationales for Deviating from Haig-Simons18.5Charitable GivingAn excellent
41、example of the application of the external benefits rationale is that donations to charitable organizations can be deducted from taxable income.Suppose that the government is concerned that the private sector is not providing sufficient funds to build shelters for the homeless,which is a classic cas
42、e of a public good.One way to address this problem would be to subsidize charitable giving to the homeless in order to increase private sector support.There is another approach the government could take to support the provision of the public good,however;it could provide the good itself.Chapter 18 T
43、axation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberExternality/Public Goods Rationales for Deviating from Haig-Simons18.5Spending Crowd-Out Versus Tax Subsidy Crowd-InIf the government subsidizes homeless shelters,the amount of
44、 private charitable giving to those shelters would most likely fall.When the government tax subsidizes charitable giving,it may“crowd in,”or increase,private contributions.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonatha
45、n GruberExternality/Public Goods Rationales for Deviating from Haig-Simons18.5Spending Crowd-Out Versus Tax Subsidy Crowd-InMarginal Versus Inframarginal Effects of Tax SubsidiesWhen economists discuss the impact of tax breaks such as those for charitable contributions,they often distinguish the mar
46、ginal and inframarginal impacts of these tax breaks.marginal impacts Changes in behavior the government hopes to encourage through a given tax incentive.inframarginal impacts Tax breaks the government gives to those whose behavior is not changed by new tax policy.Chapter 18 Taxation in the United St
47、ates and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberExternality/Public Goods Rationales for Deviating from Haig-Simons18.5Spending Crowd-Out Versus Tax Subsidy Crowd-InEffects of Tax Subsidies Versus Direct SpendingMathematically,the government should
48、use a tax break instead of direct spending if:the increase in charity per dollar of tax break 1 the reduction in charity per dollar of government spending.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberExternali
49、ty/Public Goods Rationales for Deviating from Haig-Simons18.5Spending Crowd-Out Versus Tax Subsidy Crowd-InEvidence on Crowd-Out Versus Crowd-InSeveral studies have concluded that the elasticity of charitable giving with respect to its subsidy is about 1:for each 1%reduction in the relative price of
50、 charitable giving,the amount of giving rises by 1%.Chapter 18 Taxation in the United States and Around the World 2007 Worth Publishers Public Finance and Public Policy,2/e,Jonathan GruberExternality/Public Goods Rationales for Deviating from Haig-Simons18.5Consumer Sovereignty Versus Imperfect Info
