ECON chapter 9

1. __________ affect the factors of production & therefore, resource allocation.

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2. A tax placed on a good at the factory raises production _____; if demand stays the same, the __________ price goes up.

3. Taxes affect the economy by encouraging or discouraging certain activities.

4. A _________ is a high-percentage tax that raises revenue while reducing consumption of a socially undesirable product. Example?

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5. Taxes affect productivity & economic growth by changing the ___________ to save, invest, & work.

6. The ____________ of a tax is the final burden of the tax; it is easier for a producer to shift the incidence of a tax to the ___________ if the demand is __________; the more the _________ the demand, the more likely the ________ will absorb a greater portion of the tax.

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7. Taxes are effective when they are ___________, simple, & _________.

Criterion 1 – equity or fairness; fairness is subjective, but taxes are considered fairer if they have fewer loopholes

Criterion 2 – simplicity; tax laws should be easy to understand

Criterion 3 – efficiency; which means it is easy to administer & is successful at generating revenue

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8. The _______________ states that those who benefit from gov’t goods and services should pay in proportion to the amount of benefits they receive.

9. The limitations of this principle are that many gov’t services provide the greatest benefit to those who can least afford them & that benefits are hard to measure.

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10. The _____________ principle is the belief that people should be taxed according to their ability to pay.

11. The ability-to-pay principle is based on two ideas; that societies cannot always measure the benefits derived from gov’t spending, and people with ___________ suffer less discomfort in paying taxes that people with lower incomes.

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12. A ______________ tax is one that imposes the same percentage on everyone, regardless of income.

13. A _______________ tax is one that imposes a higher percentage of tax on persons with higher incomes.

14. A ________________ tax is one that imposes a higher percentage on low incomes than on high incomes.

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1. The federal government collects about __% of its revenue from the individual income tax.

2. Taxes are typically withheld from individual’s ___________, with employers sending the taxes directly to the _____.

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3. Individuals file a tax return on or before ________ each year; if taxes withheld are more than the taxes owed, the individual receives a _______; if not, the individual makes a __________ of the tax balance.

4. The individual income tax is a ______________ tax because individuals earning higher incomes pay higher tax rates.

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5. The _________________ ____________ Act (FICA) tax pays for ____________ and _________.

6. FICA is the second largest source of government revenue.

7. The FICA tax is a __________ tax. Social Security is partly a proportional tax and partly a regressive tax.

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8. ____________ pay a tax on their profits because they are considered legal entities.

9. Corporate tax is the third largest source of gov’t revenue.

10. The ________ tax is a regressive tax on the manufacture or sale of selected items.

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11. The __________ tax deals with the transfer of property when a person dies.

12. The ______ tax is placed on large donations of money or wealth and is paid by the donator.

13. A _____________ is a charge levied on goods brought in from other countries.

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14. The Reagan administration implemented user fees for the use of goods or services.

15. User fees are an example of taxation based on the benefit principle.

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1. Intergovernmental revenues are funds collected by one level of gov’t that are distributed to another level.

2. Intergovernmental revenues are the ____________ of revenues for state & local governments; about ____ of all state revenues.

3. A __________ tax is one levied on consumer purchases for nearly all products.

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4. Employee _____________ contributions make up the ____ largest source of income.

5. __________ income tax revenues make up the ______ largest source of income.

6. Other sources of revenue include interest earnings on surplus funds; fees from state owned colleges, universities, and schools; corporate income taxes, & hospital fees.

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7. Intergovernmental revenues are generally _________ for education & public welfare; they make up the largest source of local gov’t revenue

8. ___________ taxes are levied on tangible and intangible products; they make up the second largest source.

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9. Local governments receive revenues from gov’t owned public utilities and state owned liquor stores.

10. Some towns & cities have a _____ tax, which is collected along with the state’s sales tax.

11. Other sources of local income include hospital fees, personal taxes, & public __________.

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12. Looking at your payroll withholding statement will help you identify many of your state & local government’s revenue sources.

13. Additional deductions can be added to payroll for retirement contributions, purchases savings bonds, or credit unions.

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1. The _________________ Act of 1981 reduced taxes for individuals & businesses.

2. During the 1980s, most Americans believed that the tax code favored the rich.

3. In _______ Congressional tax reform limited the tax brackets to 15% to 28%.

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4. The Omnibus Budget Reconciliation Act of _____ added two higher income tax brackets, but its goal was more to assist in balancing the federal budget than in adjusting rates for income levels.

5. In 1997, the ___________ Act was passed giving tax credits for children & educational expenses, & reduced rates to people with capital gains from long-term investments in stocks and bonds.

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6. In 2003, to offset the recession, the _________ administration & Congress made the 2001 tax cuts effective immediately, reducing the top four tax brackets, the upper limit for lower-income taxpayers, and capital gains tax.

7. A _____________ tax (VAT) places a tax on the value that manufactures add to a good at each state of production.

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8. Advantages to the VAT: the tax is levied on the total amount of sales less the cost of inputs; the incidence of the tax is widely spread among the manufactures involved; it is easy to collect; it encourages people to save.

9. Disadvantages of the VAT: taxpayers are unlikely to notice increases; & it would compete with state sales taxes.

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10. A ____ tax is a proportional tax on individual income after a specified income threshold has been reached.

11. Unexpected economic slowdowns, such as the 2001 recession, can cause ______________ to fall & budget deficits to occur.