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Chapter 9 Section 1 - The Economics of Taxation
Terms in this set (12)
a somewhat high tax designed to increase revenue and reduce consumption of a socially undesirable product such as liquor or tobacco.
Incidence of a Tax
the final burden of the tax. It can be predicted with the assistance of supply and demand analysis.
exceptions or oversight in the tax law that enable specific people and businesses to avoid paying taxes.
Individual Income Tax
a tax on people's earnings. It also is an example of a complex tax.
a general tax levied on the majority of consumer purchases. It is paid at the time of purchase, and the amount of the tax is computed and collected by the merchant.
Benefit Principle of Taxation
those who benefit from government goods and services should pay in proportion to the amount of benefits they gain.
Ability-to-Pay Principle of Taxation
the belief that people should be taxed according to their ability to pay, despite any of the benefits they receive.
imposes the exact same percentage rate of taxation on everyone, regardless of income.
The Average Tax Rate
the total taxable income divided by the total income. If the percentage tax rate is constant, the average tax rate is constant, regardless of income.
a tax that imposes a greater percentage rate of taxation on people with higher incomes.
Marginal Tax Rate
the tax rate that applies to the next dollar of taxable income, that increases as the amount of taxable income, that increases as the amount of taxable income increases.
a tax that imposes a greater percentage rate of taxation on low incomes than on high incomes.
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