Quiz 16: Taxes, Borrowing, and the National Debt

Business

Government imposes taxes to finance its programs. Government taxes come in various forms and are imposed by the federal government as well as by state and local government. Imposition of taxes has different effects on macro economy as well as on the income distribution. According to redistributive effect of taxes there are three basic types of taxes: progressive taxes, proportional taxes and regressive taxes. Income tax a progressive tax that is it takes larger percentage of income from high income people. The recent Federal income tax system imposes a little high rate of tax on high income people; those constitute only 2% of Americans, whereas the tax rate of 985 lower and middle class incomes will stay the same. This tax structure is obviously a progressive tax structure as it tax higher income people a greater percentage. This type of tax places a greater burden on high income individual, thereby redistributing income away from high income household. That is this tax system ensures more equitable distribution of income. This implies more equitable distribution of income and thus the tax system is more fair to the 97% middle and lower income people of America.

Government imposes taxes to finance its programs. Government taxes come in various forms and are imposed by the federal government as well as by state and local government. Imposition of taxes has different effects on macro economy as well as on the income distribution. According to redistributive effect of taxes there are three basic types of taxes: progressive taxes, proportional taxes and regressive taxes. A flat rate of tax is the proportional tax that takes the same percentage of income from people of all income level. As this type of tax take same proportion of income from all income people, it does not redistribute income. On the other hand it imposes higher burden to low-income individual and apparently give benefits to high income people. On the other hand a sales tax is the tax applied to purchase of specific goods and services. This tax is highly regressive as it takes greater percentage of income from low income individual than the high income individual. A regressive tax redistribute income in favor of the rich and is unfair from vie point of the society. Thus, to replace an income tax with flat rate tax or sales tax will redistribute the income in favor of the richer section of the society. This will increase the income inequality. Hence, it will not be acceptable from a society's point of view as we want to redistribute income more equitably and these changes will just do the opposite.

Government imposes taxes to finance its programs. Government taxes come in various forms and are imposed by the federal government as well as by state and local government. Imposition of taxes has different effects on macro economy as well as on the income distribution. According to redistributive effect of taxes there are three basic types of taxes: progressive taxes, proportional taxes and regressive taxes. The estate tax on high value of inheritance is the tax to the transfer of high valued property after the death of the owner. As these properties are owned by high income group, taxing these properties means placing greater burden on high income people. Thus, it implies redistributing the income away from high income people. The increase in this tax means more income will be redistributed in favor of poor and the society will have more equitable distribution of income. This tax is called death tax because it is said to the right to transfer the property after death of the owner. The death tax is paid by the heirs or to whom the property is transferred. It is only paid at the person's death and that is why it is called a "death tax".

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