CLASS NOTES 4/15/09 TAXES Efficiency of taxes vs. Equity of taxes Efficiency: Cost of collecting Distortions Deadweight loss Revenue collected Equity: ?Fairness? ?Justice? Pay same amount? ?head tax? Pay same rate? ?flat tax? ?Ability to pay principle?-rich should pay more ?Benefit principle?-pay for services used Toll roads, admission fees, service fees Tax Withholding: Automatic Stabilizer? Progressive tax system ?Bracket Creep?- Inflation caused nominal income to increase and pushed people into higher tax brackets Congress indexed the brackets to inflation (to fix the issue of ?bracket creep?) Deficit and Debt Deficit- Current expenses>income (flow variable) Debt-Cumulative amount owed (stock variable) Public Finance: Study of how governments tax and spend Incentive effects of high MTR (marginal tax rates)
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