Assignment - Economics of Taxation
Discussion 1: Economic Effects of Tax Code Provisions
The United States government's major source of revenue is the income tax, accounting for 37% of its revenue, while the social insurance tax makes up 25% and the business tax accounts for 8% as of 2015 (Chantrill, 2015). The individual states primarily rely on government transfers (mostly federal), with contribution from sales and income taxes, while local governments also receive provision from property taxes to fill their budgets (Tax Policy Center, 2013). For this Discussion, consider how much of a nation's gross domestic product should be consumed publicly, i.e., how much of it should be spent by government as opposed to how much should be spent privately by businesses and individuals, and consider how to raise the money equitably and fairly with the least influence on the economy.
An analysis of tax code provisions and economic effects. Choose three of the following tax code provisions listed below, and analyze how progressive each is and how it may distort choices and prevent efficiency in markets. For example, to promote home ownership in the United States, the tax code allows homeowners to deduct the amount they pay for mortgage interest from their income before computing the tax on it.
- Medical expenses deduction
- Charitable contributions deduction
- Child care tax credit
- Tuition tax credit/deduction
- Low Income tax credit
Discussion 2: Local Government Reliance on Property Tax
Property taxes are primarily collected at the local level and remain one of the largest revenue generators for local government. The main advantage of the property tax is in its stability. It does not fluctuate significantly from year to year, so it can be relied upon to generate a consistent amount of revenue to support local services.
As the saying goes, "All politics are local". Most people are more concerned about police and fire calls being answered quickly, garbage being picked up efficiently, and their children being given a quality education at public schools than they are about affairs of state. For this Discussion, review the week's Learning Resources and consider your experience with property taxes and local governments.
An assessment of the relationship between property tax and local governments. Your assessment should include the following:
- A description of the advantages and disadvantages of the property tax as you experience local government service delivery in your community
- An analysis of whether it is the most appropriate tax for funding local government
Assignment - National Sales Tax
A national sales tax is a variant of the general tax on comprehensive consumption discussed by Hyman (2014) in Chapter 16 of the course text. There are many arguments in favor of replacing the myriad different sales tax rates found across the United States with one national sales tax. At present, tax rates vary among the states and localities that assess a sales tax. For instance, some states exempt food and/or clothing purchases from sales taxation. As retail sales continue to migrate to the Internet, a significant issue is whether these sales should be subject to sales taxation in the state in which a purchase is delivered. For this Assignment, consider your experience as a consumer with both online and physical "brick-and-mortar" stores and whether sales tax has affected your buying decisions.
In a 4-page paper, respond to the following:
Examine the economic effects that would result from replacing state and local sales taxes with one national sales tax on all consumption, including consumption of services. For example, the federal government would collect the tax and return the revenue collected to the state governments.
Describe how replacing state and local sales taxes with a national sales tax might change consumer behavior.
Readings - Hyman, D. N. (2014). Public finance: A contemporary application of theory to policy (11th ed.). Stamford, CT: Cengage Learning.
- Review Chapter 14, "Taxation of Personal Income in the United States" (pp. 499-545)
- Chapter 15, "Taxation of Corporate Income" (pp. 546-573)
- Chapter 16, "Taxes on Consumption and Sales" (pp. 574-602)
- Chapter 17, "Taxes on Wealth, Property, and Estates" (pp. 603-633).