12 chapter
1) List and explain (in detail with exapmles) the four most important Sources of Tax Revenue to the federal government and the four most important Sources of Tax Revenue to state and local governments. Why do you think that these different government entities use different tax bases? Does it make sense?
ANSWER:
4 most important sources of tax revenue to the federal government
-individual income tax
-social insurance
-corporate tax
-excise tax
4 most important sources of tax revenue to state and local government
-sales tax
-property taxes
-individual income tax
-corporate income tax
2) List and explain in detail the four most important Expenditure Programs of the federal government and four most important Expenditure Programs of state and local governments. How do they differ from each other? Also, explain why it makes more sense for the federal government to purchase "national defense" rather than state governments.
ANSWER:
federal government spending
-social security
-nation defense
-net interest
- income security
state and local government spending
-education
-public welfare
-highways
-other
3) Is it true that a lump-sum tax is the most efficient tax? Prove and explain why it is so. If it is true why then should the U.S. government not replace income taxes with a lump-sum tax?
ANSWER:
A lump-sum tax is the most efficient tax. Because individual decision does not affect the amount of tax, the tax does not distort incentives, no sunk costs. it also minimizes the administrative burden. but it charges the same amount and with the poor and the rich, people consider this unfair. therefore necessary to consider justice.
5) Describe in detail the ability-to-pay principle of taxation. Use an example to demonstrate the difference between horizontal and vertical equity.
ANSWER:
Horizontal equity – means that taxpayers with equal ability should pay the same tax
Vertical equity - means that taxpayers...