Proportional Tax Flashcards

Proportional Taxes

• Proportional taxes maintain a constant rate relative to the tax base, with examples including state general sales tax and FICA.

Use Tax

• Imposed by most states to ensure sales tax is collected on out-of-state purchases, preventing tax avoidance.

Gift Tax Exemption

• Determined by the formula: (Number of donees) x (14,000 annual exclusion) x (number of donees), providing significant tax relief on gifts.

FICA Characteristics

• Imposed on both employers and employees.
• Includes retirement income and is federally administered.
• Spouses working together are not exempt.

FUTA Characteristics

• Focused solely on employers.
• Covers unemployment taxes at both state and federal levels.

International Trade Taxes

• The U.S. does not impose export duties, promoting international sales.

Simplification of Income Tax

• A flat tax system could streamline income tax processes.

Consumption Taxes

• Include VAT (Value Added Tax) and general sales tax, impacting consumer spending.

VAT Characteristics

• Regressive in nature and widely adopted by various countries.

Special Agent Auditors

• Assigned when there are indications of fraud to ensure compliance.

Individual Taxation Validation

• The 16th Amendment validated the taxation of individuals in the U.S.

Historical Income Tax Rates

• Initial rates were 2% for low brackets and up to 6% for high brackets.

Revenue Generation Comparison

• Income tax generates more revenue than corporate taxes.

Progressive Taxes Examples

• Include estate taxes and gift taxes, based on an individual's ability to pay.

Conversion of Property Taxation

• Changing property from residential to rental alters tax implications significantly.

Property Classification

• Fixtures are categorized under realty, while all other property is referred to as personalty.

Adam Smith's Taxation Principles

• Emphasizes equality, convenience, certainty, and economy in tax systems.

Excise Tax Consistency

• Gasoline excise tax remains consistent across states, ensuring uniformity.

Sales and Use Taxes

• Every state with a sales tax implements a corresponding use tax.

Death-related Taxes

• The federal government relies on estate tax, while states may depend on inheritance taxes.

Inheritance Tax Definition

• A tax on an heir's right to receive property from a decedent.

Federal Estate Tax Motivation

• Enacted to prevent the concentration of wealth within families across generations.

Types of Income Taxes

• Comprise federal, state, and city income taxes.

Transaction Taxes Varieties

• Include excise, sales, and severance taxes.

Death Taxes Overview

• Comprises both estate and inheritance taxes.

Unified Transfer Tax Credit

• Designed to reduce or eliminate estate tax liability for certain estates.

Annual Exclusion for Gifts

• Currently set at $14,000 per donee.

Examples of Excise Taxes

• Include taxes on gasoline, tobacco, liquor, telephone services, and air travel.

Purpose of Use Tax

• Exists to maintain sales tax integrity by taxing items bought out-of-state without a sales tax.

Severance Tax Definition

• Tax levied on the extraction of natural resources.

Classification of Death Taxes

• Estate tax applies to the right to transfer property, while inheritance tax applies to the rights of receiving it.

Taxable Gift Calculation

• Determined by Fair Market Value (FMV) minus annual exclusion and marital deduction.

Income Tax Structure

• Both individual and corporate federal income taxes are progressive, adjusting based on income levels.

Federal Income Tax Formula for Individuals

• Involves multiple steps, from gross income calculation to deductions and credits for final tax due.

FICA Example

• Social Security tax serves as a primary example of the FICA tax system.

Unemployment Taxes

• Federal Unemployment Tax Act (FUTA) governs unemployment tax regulations.