Deck 16: Taxes, Borrowing, and the National Debt

Question 1

Consider the recent cuts in the federal personal income tax. What is the effect on income distribution Do you believe this is fair Why or why not

Answer 1

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.

Question 2

Consider other proposals to replace the federal income tax structure with a flat rate tax structure or to replace the income tax with a national sales tax. How would these actions affect income distribution Do you agree with these proposals Why or why not

Answer 2

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.

Question 3

How do you feel about the elimination of the estate tax on extremely high values of inheritance Why did the Bush administration refer to this tax as a "death tax"

Answer 3

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".

Question 4

How do you feel about a reduction in the capital gains tax An increase in the Earned Income Tax Credit What is the effect of these on income distribution

Question 5

Should the Social Security tax be overhauled to reduce its regressivity Why or why not How might this be done

Question 6

Why does the government place excise taxes on goods such as cigarettes and alcohol Is it because these products are "sinful" (These taxes are often called "sin taxes.") Do you believe that excise taxes reduce consumption of these goods by very much What does your response to the previous question imply regarding the amount of government excise tax revenue
previous question:
Should the Social Security tax be overhauled to reduce its regressivity Why or why not How might this be done

Question 7

What sort of tax system do you feel is the fairest What are the advantages and disadvantages of regressive, progressive, and proportional taxes

Question 8

What do you think of the European approach to encouraging conservation in gasoline use by imposing very large excise taxes on gasoline Do you think this would work in the United States Do you think it makes a difference if we are considering a short time period (such as two months) versus a longer time period (such as two years) Why

Question 9

Visit the Census Bureau Web site (http://www.census. gov) to find current information on federal government spending and tax revenue. What is the major spending category What is the major tax revenue source

Question 10

Visit the Treasury Bulletin Web site (http://www.fms. treas.gov/bulletin) to determine the current size of the budget deficit and of the national debt. How have these figures changed, if at all, from the data in this textbook

Question 11

Do you believe that the current budget deficit should be reduced If so, how should it be done Should taxes be increased Should government spending be reduced If so, which specific programs should be reduced

Question 12

Are you concerned about the national debt Why or why not Has your opinion changed as a result of what you have learned in this chapter Has your opinion changed as a result of the large buildup of military expenditures related to the wars in Iraq and Afghanistan Has your opinion changed as a result of the 2008-2009 recession and stimulus spending by government