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CE Public Finance
Public Finance
What is public finance?
Public finance means how the government raises funds and spends the money on various kinds of services for the economy.
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CE Public Finance
Revenues (from tax collection) = Govt Spending Revenues > Spending Revenues < Spending Budget Surplus Budget Deficit
Revenues mainly from Taxes. Some comes from Tariffs, fees, and other levies on goods and services
Taxation
The system of compulsory contributions levied by a government or other qualified body on people, corporations and property in order to fund public expenditures. An inherent power of the state to raise income and to demand enforced contributions for public purposes.
Purposes of Taxation
taxes also impact the economy in the following ways:
Create revenues for the government Affect consumption and production Behavior adjustment Productivity and Growth Correct negative externalities Stabilize Prices
National Defense
Social Services
Public Education
Classification of taxes
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Classification of taxes
According to the party who bears the tax burden, taxes can be classified into: ________ direct taxes and ________ indirect taxes
According to how the tax payment changes with income, taxes can be classified into: __________ proportional and progressive , ____________ regressive taxes __________
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Direct tax
is a tax on income or wealth. The owner of the income or product pays the tax the tax incidence or burden CANNOT be shifted. the tax rate is either progressive or proportional Examples: Income tax profit tax property tax interest tax ?
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Income Tax
Individual income taxes are paid in a year through a payroll withholding system By April 15, of every year you must file a tax return.
Indirect Tax
Tax on goods and services Tax burden can be shifted to other people
Indirect Tax
Producers Consumers
Indirect tax
is a tax on goods and services the tax incidence or burden CAN be shifted ( usually to the consumers, depending on the elasticity of demand and supply ) the tax rate is regressive cigarettes tax; stamp duty; general rates; vehicle import tax; airport departure tax; tax on alcoholic liquor; hotel accommodation tax; entertainment tax; betting tax and etc.
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Entertainment Tax
Stamp Duties
egressive tax: As income rises, the tax payment takes a decreasing percentage of taxable income. ____________________
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Progressive Tax
People with higher incomes pay a higher percentage in taxes. Simple the more you make the more they take
INCOME
$10,000 $50,000
Amount Paid Amount Paid in Taxes as a percentage of Income $1,000 10% $ 10,000 20%
$100,000
$ 30,000
30%
Progressive Tax
40%
Tax rate progresses from 2% to 17% while the standard tax rate is 15%.
Salaries Tax
Proportional Tax
Average Tax Rate
40%
20% 10%
Average tax rate same __ remains the ______ at all levels of income
Proportional Tax Income
Profits Tax
$15,000
$75,000
15%
15%
As net profit (income) is increased, the same percentage of taxpayer pays the _______ income as tax, i.e. the average tax rate constant as income is increased. remains __________
Regressive Tax
Average Tax Rate
Income
Regressive Taxes
The lower the income the higher percentage paid in taxes. Example: Sales tax. Assume two families paid $1000 in sales tax by the end of the year. Which family spent a higher percent of their income on taxes? Income Amount paid Amount paid in taxes as a in taxes
percentage of their income.
$10,000 $50,000
$1000.00 $1000.00
10% 5%
Tax Evasion
When there is fraud through pretension and the use of other illegal devices to lessen ones taxes, there is tax evasion
Under-declaration of income Non-declaration of income and other items subject to tax Under-appraisal of goods subject to tariff Over-declaration of deductions