Chapter+12+JK+&+JJ

The Design of the Tax System media type="custom" key="5219081" Key Concepts -The US Gov raise rev using various taxes. Most important taxes for the Federal gov and indivial income taxes and payroll taxes for social insurance. The most important taxes for state and local gov and sales taxes and property taxes -The efficiency of a tax system refers to the cost it imposes on taxpayers. There are two costs of taxes beyond the transfer of resources from the taxpayer to the gov. The first is the distortion in the allocation of resources that arises as taxes alter incentives and behavior. The second is the administrative burden of complying with the tax laws -The equity of a tax system concerns whether the tax burden is distributed fairly among the population. According to the benefits principle. so it is fair for people to pay taxes based on the benefits they receive from the gov. According to the ability-to-pay princople it is fair for people to pay taxes based on their capability to handle the financial burden, When evaluating the equity of a tax system, it is important to remember a lesson from the study of tax incidence: the distribution of tax burdens is not the same as the distribution of tax bills -When considering changes in the tax laws, policymakers often face a trade-off b/w efficiency and equity so more debate over taxy policy results because people give two different goals.

windward.hawaii.edu/facstaff/briggs-p/Microeconomics/Chap_**12**.**ppt**