Podcast
Questions and Answers
The __________ principle of tax equity states that a tax is equitable when it pays for services consumers desire.
The __________ principle of tax equity states that a tax is equitable when it pays for services consumers desire.
- Neutrality principle
- Benefit principle (correct)
- Ability-to-pay principle
- Uniformity principle
The __________ principle of tax equity states that a tax is equitable when taxpayers in equal economic positions are taxed __________ and taxpayers in unequal positions are taxed __________.
The __________ principle of tax equity states that a tax is equitable when taxpayers in equal economic positions are taxed __________ and taxpayers in unequal positions are taxed __________.
- Neutrality; uniformly; proportionally
- Uniformity; consistently; progressively
- Ability-to-pay; equally; differently (correct)
- Benefit; fairly; flexibly
Which criteria for a good tax is violated when a tax policy or system incentivizes businesses to move operations to a certain part of town?
Which criteria for a good tax is violated when a tax policy or system incentivizes businesses to move operations to a certain part of town?
- Neutrality (correct)
- Stability
- Administrative simplicity
- Equity
__________ occurs when taxpayers believe that a tax is generally necessary and beneficial. It is a cumulative effect but may also be considered an independent criteria of a good tax.
__________ occurs when taxpayers believe that a tax is generally necessary and beneficial. It is a cumulative effect but may also be considered an independent criteria of a good tax.
One key takeaway from Adam Smith's four canons of taxation is that tax compliance is greater when it is __________ for the taxpayer.
One key takeaway from Adam Smith's four canons of taxation is that tax compliance is greater when it is __________ for the taxpayer.
Which of the criteria for a good tax was in question when the U.S. Supreme Court ruled that a jurisdiction in Nebraska should lower one taxpayer's assessment to the same fraction of market value as the rest of the district, despite the fact that this violated state law?
Which of the criteria for a good tax was in question when the U.S. Supreme Court ruled that a jurisdiction in Nebraska should lower one taxpayer's assessment to the same fraction of market value as the rest of the district, despite the fact that this violated state law?
__________ measures overall economic costs or losses resulting from the imposition of a tax, while __________ measures how the tax financially impacts specific economic sectors or groups of taxpayers.
__________ measures overall economic costs or losses resulting from the imposition of a tax, while __________ measures how the tax financially impacts specific economic sectors or groups of taxpayers.
The individual or entity who ultimately takes a reduction to their income after any shifting has occurred is said to bear the __________ incidence of a tax.
The individual or entity who ultimately takes a reduction to their income after any shifting has occurred is said to bear the __________ incidence of a tax.
When a business passes tax incidence to customers in the form of higher prices, it is called __________ shifting. When a business passes tax incidence to factors impacting production (like employee wages), it is called __________ shifting.
When a business passes tax incidence to customers in the form of higher prices, it is called __________ shifting. When a business passes tax incidence to factors impacting production (like employee wages), it is called __________ shifting.
When lower-income taxpayers must pay a higher percentage of their income toward a tax than higher-income taxpayers, the tax is considered __________.
When lower-income taxpayers must pay a higher percentage of their income toward a tax than higher-income taxpayers, the tax is considered __________.
When income elasticity is less than 1, it means that tax collections will change at a __________ rate than income.
When income elasticity is less than 1, it means that tax collections will change at a __________ rate than income.
Flashcards
Benefit Principle
Benefit Principle
A principle stating a tax is fair if it aligns with the services consumers receive.
Ability-to-Pay Principle
Ability-to-Pay Principle
A principle stating a tax is equitable when those in equal economic positions are taxed equally, and those in unequal positions differently.
Neutrality
Neutrality
A principle stating tax policies should not distort economic decisions, preventing disruption of market efficiency.
Public Acceptance
Public Acceptance
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Easy for the taxpayer
Easy for the taxpayer
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Uniformity
Uniformity
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Tax burden
Tax burden
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Tax incidence
Tax incidence
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Economic incidence
Economic incidence
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Forward shifting; backward shifting
Forward shifting; backward shifting
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Regressive tax
Regressive tax
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Income elasticity less than 1
Income elasticity less than 1
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Study Notes
Benefit Principle
- A tax is equitable when it funds services desired by consumers.
- This principle links payment to consumption, ensuring fairness.
Ability-to-Pay Principle
- A tax is equitable when taxpayers in similar economic positions are taxed equally.
- Taxpayers in different economic positions are taxed differently.
- It ensures fairness by basing taxation on individual economic capacity.
Neutrality in Taxation
- It requires tax policies to avoid economic distortion.
- It can occur when policies incentivize businesses to relocate.
- Tax neutrality promotes market efficiency by not influencing economic decisions.
Public Acceptance of Taxes
- It stems from taxpayers perceiving a tax as justifiable and beneficial.
- It leads to voluntary compliance and lowers resistance.
Tax Simplicity
- Adam Smith noted its importance for tax compliance.
- Understandable and straightforward taxes encourage taxpayers to meet obligations.
Uniformity in Taxation
- It ensures consistent application of taxes across all taxpayers, regardless of circumstance.
- Assessments must follow uniform standards, even if it means diverging from pre existing state law.
Tax Burden vs. Tax Incidence
- Tax burden captures the total economic cost of a tax across the economy.
- Tax incidence focuses on the financial impact on specific sectors or groups.
Economic Incidence
- It represents who ultimately bears the financial impact of a tax.
- This impact occurs after adjustments or shifts, like pricing or wage changes.
Tax Shifting
- Forward shifting involves businesses transferring tax costs to customers through higher prices.
- Backward shifting involves businesses absorbing the tax burden by reducing wages, profits, or production costs.
Regressive Tax
- It places a greater relative burden on lower-income taxpayers.
- This occurs because they spend a higher proportion of their income on taxed items.
Income Elasticity and Tax Collections
- Income elasticity less than 1 means tax revenues grow at a slower rate than income.
- This is common in systems that rely primarily on flat or regressive taxes.
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