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Found of Taxation
Chapter 2: Policy Standards for a Good Tax
| Term | Definition |
|---|---|
| tax policy | a government’s attitude, objectives, and actions with respect to its tax system |
| sufficiency | the first standard for a good tax. a tax should generate enough revenue to pay for the public goods and services provided by the government levying the tax |
| static forecast | a projection of revenue gain or loss resulting from a tax rate change that assumes that the change will have no effect on the tax base |
| dynamic forecasts | a projection of revenue gain or loss resulting from a tax rate change that assumes that the change will affect the tax base |
| income effect | a behavioral response to an income tax rate increase. Taxpayers engage in more income-producing activities to maintain their level of disposable income. |
| substitution effect | a behavioral response to an income tax rate increase. Taxpayers engage in fewer income-producing activities and more non–income-producing activities |
| supply-side economic theory | a decrease in the highest income tax rates should stimulate economic growth and ultimately result in an increase in government revenues |
| convenience | the second standard for a good tax; a tax should be convenient for the government to administer and for people to pay |
| efficiency | classical economic theory holds that an efficient tax is neutral and has no effect on economic behavior. In contrast, Keynesian theory holds that an efficient tax is a fiscal policy tool by which the government can affect economic behavior |
| negative externalities | an undesirable by-product of the free enterprise system |
| tax preferences | in the general context, provisions included in the federal tax law as incentives to encourage certain behaviors or as subsidies for certain activities; in AMT context, specific items added to regular taxable income in the computation of AMTI |
| Tax Expenditures Budget | part of the federal budget that quantifies the annual revenue loss attributable to each major tax preference |
| ability to pay | economic resources under a person’s control from which he or she can pay tax |
| horizontal equity | one aspect of the fourth standard of a good tax: A tax is fair if persons with the same ability to pay (as measured by the tax base) owe the same tax |
| vertical equity | one aspect of the fourth standard of a good tax: a tax is fair if persons with a greater ability to pay (as measured by the tax base) owe more tax than persons with a lesser ability to pay |
| regressive rate structure | a graduated rate structure with rates that decrease as the base increases |
| proportionate rate structure | a rate structure with a single, or flat, rate |
| declining marginal utility of income | the theory that the financial importance associated with each dollar of income diminishes as the total income increases |
| progressive rate structure | a graduated rate structure with rates that increase as the base increases |
| marginal rate | the tax rate that applies to the next dollar of taxable income |
| average rate | the tax rate determined by dividing the total tax liability by the total tax base |
Created by:
ryanriggs18
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