The Scale Of Taxation

Why we tax

The Government implements taxes for 2 main reasons:

  • Revenue Taxes: Raise money that goes towards financing Government projects, services, and programs.
  • Regulatory Taxes: Regulate certain industries, business practices, services, and/or products.

There are 2 types of Government implemented Taxes:

  • Income, Sales, Estate, and Property Taxes are Revenue Taxes.
  • Excise taxes, as well as Export Duties, are Regulatory Taxes.

There can be a lot of debate about this but the general purposes of taxes are to charge for things that are hard to meter, like police protection, that public goods where we all share the benefits without decreasing the benefits of others, like national defense, and to redistribute income.

Some tax scales

(2010) Federal Tax Rate Schedules1

Single Filing Status

* 10% on income between $0 and $8,375
* 15% on the income between $8,375 and $34,000; plus $837.50
* 25% on the income between $34,000 and $82,400; plus $4,681.25
* 28% on the income between $82,400 and $171,850; plus $16,781.25
* 33% on the income between $171,850 and $373,650; plus $41,827.25
* 35% on the income over $373,650; plus $108,421.25

Married Filing Jointly or Qualifying Widow(er) Filing Status

* 10% on the income between $0 and $16,750
* 15% on the income between $16,750 and $68,000; plus $1,675
* 25% on the income between $68,000 and $137,300; plus $9,362.50
* 28% on the income between $137,300 and $209,250; plus $26,687.50
* 33% on the income between $209,250 and $373,650; plus $46,833.50
* 35% on the income over $373,650; plus $101,085.50

Married Filing Separately Filing Status

* 10% on the income between $0 and $8,375
* 15% on the income between $8,375 and $34,000; plus $837.50
* 25% on the income between $34,000 and $68,650; plus $4,681.25
* 28% on the income between $68,650 and $104,625; plus $13,343.75
* 33% on the income between $104,625 and $186,825; plus $23,416.75
* 35% on the income over $186,825; plus $50,542.75

Head of Household Filing Status

* 10% on the income between $0 and $11,950
* 15% on the income between $11,950 and $45,550; plus $1,195
* 25% on the income between $45,550 and $117,650; plus $6,235
* 28% on the income between $117,650 and $190,550; plus $24,260
* 33% on the income between $190,550 and $373,650; plus $44,672
* 35% on the income over $373,650; plus $105,095

Highest individual income tax rate: 39.6%

http://www.taxpolicycenter.org/taxtopics/2010_budget_high-income.cfm

"Reinstate 39.6 percent rate in 2011 - The president proposes to raise the top tax rate in 2011 from 35 percent to 39.6 percent."

State Taxes

http://www.bankrate.com/finance/taxes/check-taxes-in-your-state.aspx

-This a great site for discovering tax brackets and other facts regarding state taxes

Federal Insurance Contributions Act (Social Security & Medicare) tax: 7.65% (Employees, Employers), 15.3% (Self Employed)2
Effective Tax Rate: Ratio of Federal Taxes to Household Income during the fiscal year.

Personal tax rates and comparison to government as percent of GDP3

  • For the past 5 years, Federal Individual Income Taxes have comprised an average of 7.84% of U.S. GDP.
  • During the same period, Federal Corporation Income Taxes have averaged 2.28% of U.S. GDP
  • Overall, total revenue from taxes in the U.S. over the last 5 years has averaged 17.78% of GDP.

Corporate Taxes

  • Government Taxes on Corporate Earnings and Profits

Federal Corporate

Federal Corporate Tax Rates:4

Taxable income Tax rate
First $50,000 15%
$50,001–$75,000 25%
$75,001–$100,000 34%
$100,001–$335,000 39%
$335,001–$10,000,000 34%
$10,000,001–$15,000,000 35%
$15,000,001–$18,333,333 38%
Over $18,333,333 35%

"Federal Insurance Contributions Act (Social Security) tax: 7.65%4
Often totals ~20%
citation: http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax

  • Corporate Tax levied by the Federal Government
  • Seperate from State Corporate Taxes

State Corporate

Seven states don’t have income tax:

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming don't have income tax.

New Hampshire and Tennessee only tax interest and dividend income

However, there are some things you should consider:

States with no income tax often have very high sales tax
Alaska and Florida have very high costs of living (some of the others might also)

For a chart of the individual states income tax rates go here: http://www.taxadmin.org/fta/rate/ind_inc.html

http://www.taxfoundation.org/taxdata/show/230.html
-State income tax charts

  • Corporate Tax levied by individual State Governments.

Which Rate to Use in Cost Effectiveness

Midterm 2 Question

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