Module 2
Introduction to Taxation
A. Taxes Attention
A clear understanding of the role of taxes in everyday decisions will help you
make an informed decision about the value of studying taxation or pursuing a career in
taxation. One view of taxation is that it represents an inconvenience every April 15th (the
annual due date for filing federal individual tax returns without extensions). However, the
role of taxation is much more pervasive than this view suggests. Your study of this
subject will provide you a unique opportunity to develop an informed opinion about
taxation. As a business student, you can overcome the mystery that encompasses popular
impressions of the tax system and perhaps, one day, share your expertise with friends or
clients.
What are some common decisions you face that taxes may influence? In this
course, we alert you to situations in which you can increase your return on investments
by up to one-third! Even the best lessons in finance courses can’t approach the increase in
risk-adjusted return that smart tax planning provides. Would you like to own your home
someday? Tax deductions for home mortgage interest and real estate taxes can reduce the
after-tax costs of owning a home relative to renting. Thus, when you face the decision to
buy or rent, you can make an informed choice if you understand the relative tax
advantages of home ownership.
The prospect of retirement is a significant milestone in one's life, and
understanding the intricacies of tax-advantaged methods for saving can profoundly
impact the financial well-being during the golden years. Planning for retirement involves
not only envisioning a life free from the demands of the workforce but also strategically
managing financial resources to ensure a comfortable and secure future. Delving into the
world of tax-advantaged retirement savings is not just a prudent financial move; it's a
crucial step in enhancing the after-tax value of your retirement nest egg, thereby
increasing the likelihood of enjoying retirement in style.
One of the primary avenues for tax-advantaged retirement savings is through
employer-sponsored retirement plans, such as 401(k)s or 403(b)s. These plans offer
individuals the opportunity to contribute a portion of their pre-tax income, effectively
reducing their taxable income for the year. The contributions grow tax-deferred, meaning
that individuals do not pay taxes on the earnings until they withdraw the funds during
retirement. This not only allows for the potential for compound growth over time but also
provides a tax-efficient means of building a substantial retirement fund.
Individual Retirement Accounts (IRAs) represent another valuable tool in the
arsenal of tax-advantaged retirement savings. Traditional IRAs offer tax-deductible
contributions, reducing the individual's taxable income in the year of contribution.
Similar to employer-sponsored plans, the investments within a traditional IRA grow tax-
deferred until withdrawals are made during retirement. Roth IRAs, on the other hand, do
not provide an upfront tax deduction for contributions but offer tax-free withdrawals in
retirement, including earnings, under certain conditions. Navigating the nuances between
traditional and Roth IRAs requires careful consideration of current and future tax
implications, making it essential for individuals to tailor their approach to their unique
financial circumstances.
Furthermore, Health Savings Accounts (HSAs) can serve as a dual-purpose
vehicle for addressing both healthcare costs and retirement savings. Contributions to
HSAs are made with pre-tax dollars, and the funds can be used tax-free for qualified
medical expenses. Additionally, after the age of 65, individuals can withdraw funds from
an HSA for non-medical expenses without incurring a penalty, although income taxes
would apply. This flexibility makes HSAs a unique tool for individuals looking to
supplement their retirement income while addressing healthcare needs.
Beyond these traditional vehicles, there are various other tax-advantaged
strategies for retirement, including annuities, life insurance products, and taxable
investment accounts with a focus on tax efficiency. The key is to adopt a holistic
approach, considering a diversified portfolio of retirement savings vehicles that align
with individual goals, risk tolerance, and tax planning objectives.
In essence, a comprehensive understanding of tax-advantaged methods for saving
for retirement is not just about maximizing financial resources; it's about crafting a
tailored strategy that aligns with personal aspirations for retirement. By leveraging these
tax-advantaged tools effectively, individuals can enhance the after-tax value of their
retirement savings, potentially affording them the opportunity to retire not only
comfortably but in a manner that reflects their desired lifestyle. As retirement planning
evolves into an increasingly dynamic landscape, staying informed about tax-advantaged
options becomes an indispensable component of securing a prosperous and fulfilling
retirement.
The influence of taxes on personal financial decisions extends far beyond the
realm of income reporting and tax return preparation. Taxes weave into the fabric of
numerous aspects of individuals' financial lives, playing a pivotal role in shaping choices
related to investments, career paths, education savings, and even estate planning. The
multifaceted impact of taxes is a testament to their pervasive presence, making them an
integral consideration in the myriad decisions that individuals navigate throughout their
lives.
One crucial area where taxes exert a profound influence is in the realm of
investment decisions. Investors must carefully weigh the tax implications of different
investment options, taking into account factors such as capital gains taxes, dividends, and
the timing of transactions. Tax considerations often play a crucial role in determining the
optimal investment strategy, affecting not only the potential returns on investments but
also the overall after-tax performance of a portfolio. Understanding the intricacies of tax
laws and regulations becomes essential for investors seeking to maximize their financial
outcomes while minimizing their tax liabilities.
Similarly, individuals often find themselves at crossroads when evaluating
alternative job offers. The compensation package offered by a prospective employer may
include various elements such as salary, bonuses, stock options, and retirement benefits,
each with distinct tax implications. Making informed decisions in such scenarios requires
a comprehensive understanding of the tax consequences associated with different
compensation structures, helping individuals optimize their overall financial well-being
and minimize their tax liabilities over the course of their careers.
The role of taxes extends into the realm of education planning, where individuals
and families grapple with the challenge of saving for educational expenses. Tax-
advantaged accounts such as 529 plans offer opportunities to accumulate funds for
educational purposes while enjoying certain tax benefits. Understanding the intricacies of
these accounts and navigating the intersection of education savings and tax planning is
crucial for families aiming to provide quality education for their loved ones while
optimizing their financial strategies.
Moreover, the specter of taxes looms large in the arena of gift and estate planning.
Individuals seeking to pass on wealth to future generations or engage in philanthropy
must carefully consider the tax implications of their decisions. Estate taxes, gift taxes,
and inheritance taxes all come into play, requiring strategic planning to minimize the tax
burden on assets transferred to heirs or charitable organizations. Estate planning thus
becomes a delicate balance between achieving personal financial goals and navigating the
complexities of the tax code.
In essence, taxes are not mere annual obligations but integral factors that
permeate various dimensions of personal finance. Whether individuals are making
investment choices, considering career moves, saving for education, or planning for the
transfer of wealth, taxes are omnipresent, influencing decisions and shaping financial
outcomes. Developing a nuanced understanding of the intersection between taxes and
personal finance empowers individuals to navigate these complex landscapes with
confidence, making informed decisions that align with their financial goals and
aspirations.
Savvy business decisions require owners and managers to consider all costs and
benefits in order to evaluate the merits of a transaction. Although taxes don’t necessarily
dominate these decisions, they do represent large transaction costs that businesses should
factor into the financial decision-making process. Taxes also play a major part in the
political process. U.S. presidential candidates often distinguish themselves from their
opponents based upon their tax rhetoric. Indeed, the major political parties generally have
very diverse views of the appropriate way to tax the public.
The complexities inherent in the realm of taxation necessitate a thoughtful
examination of various aspects, including who bears the tax burden, what items or
activities are subject to taxation, and the extent of the tax levied. These questions are not
only pivotal to the functioning of any tax system but also play a crucial role in shaping
economic policies and influencing social dynamics. It is imperative for voters, as key
stakeholders in the democratic process, to cultivate a basic understanding of these
intricate tax-related issues in order to critically evaluate and comprehend the merits of
alternative tax proposals.
To unravel the intricacies of taxation, one must first grapple with the fundamental
question of who is taxed. This question delves into the distributional impact of taxes,
exploring how the tax burden is allocated among different segments of the population.
Various tax structures may impact individuals, households, or businesses differently,
giving rise to discussions about fairness, equity, and social justice. Understanding the
implications of these distributional dynamics is essential for voters to make informed
assessments of tax proposals and their potential effects on societal well-being.
Equally significant is the consideration of what is taxed. The scope of taxable
items or activities varies across jurisdictions and is often a reflection of societal values
and policy objectives. Some tax systems focus on income, while others target
consumption or wealth. The choice of what to tax carries implications for economic
behavior, incentivizing or disincentivizing certain activities. An informed electorate
should be equipped to analyze the consequences of tax policies on individual and
collective decision-making, economic efficiency, and overall societal welfare.
The third dimension of tax complexity involves determining how much is taxed.
The magnitude of tax rates and the design of tax brackets influence the overall revenue
generated by the government and, consequently, its ability to fund public services and
programs. Voters need to grasp the trade-offs involved in setting tax rates, considering
factors such as economic growth, income distribution, and the impact on different sectors
of the economy. Developing a nuanced understanding of the quantitative aspects of
taxation empowers individuals to critically evaluate proposals and discern their potential
implications for both the economy and society at large.
As this exploration of tax intricacies unfolds, it becomes evident that equipping
voters with a basic understanding of taxes is not only a civic responsibility but also a
means of fostering informed and participatory democracy. In the subsequent chapters, we
will delve deeper into the criteria that can be employed to evaluate alternative tax
proposals. These criteria encompass a spectrum of considerations, including economic
efficiency, fairness, simplicity, and administrative feasibility. By providing voters with a
comprehensive framework for assessment, we aim to empower them to actively engage
in the democratic process, contributing to the development of sound and equitable tax
policies that align with the collective aspirations of society.
B. Tax Qualification
“Taxes are the price we pay for a civilized society.” —Oliver Wendell Holmes, Jr.
Taxes have been described in many terms: some positive, some negative, some printable,
some not. Let’s go directly to a formal definition of a tax, which should prove useful in
identifying alternative taxes and discussing alternative tax systems. A tax is a payment
required by a government that is unrelated to any specific benefit or service received
from the government. The general purpose of a tax is to fund the operations of the
government (to raise revenue). Taxes differ from fines and penalties in that taxes are not
intended to punish or prevent illegal behavior.
The intricate dynamics of our federal tax system extend beyond the
straightforward collection of revenue; it serves as a multifaceted tool that not only funds
government operations but also influences individual and corporate behaviors. One
notable aspect is the encouragement of specific behaviors through the provision of
deductions from income. This strategic approach is designed to incentivize actions
deemed beneficial to society, such as charitable contributions, retirement savings, and
investments in research and development.
The incorporation of deductions in the tax code reflects a deliberate effort to
shape economic and social outcomes. Charitable contributions, for instance, are often
incentivized by allowing taxpayers to deduct the amount donated from their taxable
income. This serves a dual purpose of supporting philanthropic endeavors while
mitigating the tax burden on those who contribute to the betterment of society. Similarly,
deductions for retirement savings aim to promote long-term financial planning,
encouraging individuals to save for their future well-being.
Moreover, the tax system acts as a lever for fostering innovation and
technological advancements. Research and development (R&D) expenditures incurred by
businesses are often eligible for tax credits or deductions, creating a favorable
environment for companies to invest in cutting-edge technologies and scientific
endeavors. This not only bolsters economic growth but also positions the nation as a
leader in innovation on the global stage.
However, the flip side of this incentivizing mechanism is the implicit
discouragement of certain behaviors through the imposition of surcharges, commonly
known as sin taxes. These levies are designed to dissuade individuals from engaging in
activities deemed socially harmful, such as excessive alcohol consumption and tobacco
use. Sin taxes typically involve imposing relatively high surcharges on products like
alcohol and tobacco, thereby increasing the overall cost and, theoretically, reducing
consumption.
In this way, the federal tax system assumes a role beyond revenue generation,
becoming a tool for social engineering and public policy implementation. It becomes a
balancing act, attempting to strike a chord between encouraging positive behaviors
through deductions and discouraging potentially harmful actions through surcharges. The
complexity of this system lies in the need to navigate a diverse range of societal values,
economic considerations, and public health objectives.
It is essential to recognize that the tax system's impact on behavior is not
universally agreed upon, and debates persist regarding the efficacy and fairness of such
measures. While some argue that tax incentives can effectively drive positive societal
outcomes, others question the potential unintended consequences and the equitable
distribution of benefits. Similarly, the imposition of sin taxes raises ethical
considerations, including concerns about regressive taxation and individual autonomy.
In conclusion, our federal tax system operates as a multifaceted instrument that
goes beyond its primary function of revenue collection. Through a delicate interplay of
deductions and surcharges, it seeks to shape individual and corporate behaviors, aligning
economic activities with societal goals. The ongoing discourse surrounding the role of
taxes in influencing behavior underscores the intricate relationship between fiscal
policies, social values, and the pursuit of a more equitable and prosperous society.
This last point is not to say that taxpayers receive no benefits from the taxes they
pay. They benefit from national defense, a judicial system, law enforcement,
governmentsponsored social programs, an interstate highway system, public schools, and
many other government-provided programs and services. The distinction is that taxes
paid are not directly related to any specific benefit received by the taxpayer. For example,
the price of admission to Yellowstone National Park is a fee rather than a tax because a
specific benefit is received. Can taxes be assessed for special purposes, such as a 1
percent sales tax for education? Yes.
An earmarked tax, commonly referred to as a tax that is designated for a specific
purpose, retains its classification as a tax due to the nuanced nature of its implementation.
This fiscal mechanism operates on the premise that the funds collected from taxpayers
are earmarked or allocated for a particular purpose, such as funding education,
healthcare, or infrastructure projects. Despite its earmarked nature, the connection
between the payment made by the taxpayer and the specific benefit received is not always
straightforward, giving rise to a complex interplay of financial dynamics and public
policy considerations.
The retention of the term "tax" in the context of earmarked taxes stems from the
fact that, at its core, this financial imposition shares common characteristics with
traditional taxes. It involves compulsory contributions from citizens or entities, enforced
by the government, to fund public initiatives. However, the distinguishing factor lies in
the earmarking, where the revenue generated is explicitly designated for a predefined
purpose.
The complexity arises when one delves into the intricacies of how earmarked
taxes are utilized and how the benefits are distributed. The connection between the
amount paid by a taxpayer and the specific benefits received may not always be a direct
correlation. This can be attributed to various factors, including administrative costs,
bureaucratic inefficiencies, and the challenge of accurately measuring the individual
impact of the earmarked funds.
Moreover, earmarked taxes often introduce an added layer of transparency and
accountability to government finances. By allocating funds for specific purposes,
governments aim to demonstrate a clear link between taxation and the provision of public
goods and services. However, the effectiveness of this approach can be influenced by the
overall efficiency of government operations, the accuracy of budgetary projections, and
the ability to adapt to changing economic circumstances.
In essence, while earmarked taxes share the fundamental characteristics of
traditional taxes, their specific designation for particular purposes introduces a level of
complexity and intricacy into the relationship between taxpayer contributions and the
benefits derived. Understanding the dynamics of earmarked taxes involves exploring not
only the legal and financial frameworks but also the broader implications for governance,
public trust, and the overall effectiveness of public spending.
C. Calculate a Tax
The tax base defines what is actually taxed and is usually expressed in monetary
terms, whereas the tax rate determines the level of taxes imposed on the tax base and is
usually expressed as a percentage. For example, a sales tax rate of 6 percent on a
purchase of $30 yields a tax of $1.80 ($1.80 = $30 × .06). Federal, state, and local
jurisdictions use a large variety of tax bases to collect tax. Some common tax bases (and
related taxes) include taxable income (federal and state income taxes), purchases (sales
tax), real estate values (real estate tax), and personal property values (personal property
tax).
Different portions of a tax base may be taxed at different rates. A single tax
applied to an entire base constitutes a flat tax. In the case of graduated taxes, the base is
divided into a series of monetary amounts, or brackets, and each successive bracket is
taxed at a different (gradually higher or gradually lower) percentage rate. Calculating
some taxes—income taxes for individuals or corporations, for example—can be quite
complex. Advocates of flat taxes argue that the process should be simpler. But as we’ll
see throughout the text, most of the difficulty in calculating a tax rests in determining the
tax base, not the tax rate. Indeed, there are only three basic tax rate structures
(proportional, progressive, and regressive), and each can be mastered without much
difficulty.
Note that in this graduated tax rate structure, the first $19,050 of taxable income is
taxed at 10 percent, the next $58,350 of taxable income (between $19,050 and $77,400)
is taxed at 12 percent, and Bill and Mercedes’s last $82,600 of taxable income (between
$77,400 and $160,000) is taxed at 22 percent. Many taxpayers incorrectly believe that all
their income is taxed at their marginal rate. This mistake leads people to say, “I don’t
want to earn any additional money because it will put me in a higher tax bracket.” Bill
and Mercedes are currently in the 22 percent marginal tax rate bracket, but notice that not
all their income is taxed at this rate. Their marginal tax rate is 22 percent. This means that
small increases in income will be taxed at 22 percent, and small increases in tax
deductions will generate tax savings of 22 percent. If Bill and Mercedes receive a large
increase in income (or in deductions) such that they change tax rate brackets, we could
not identify their marginal tax rate simply by knowing their current tax bracket.
We should not be surprised that Bill and Mercedes’s average tax rate is lower than
their marginal tax rate because, although they are currently in the 22 percent tax rate
bracket, not all of their taxable income is subject to tax at 22 percent. The first $19,050 of
their taxable income is taxed at 10 percent, their next $58,350 is taxed at 12 percent, and
only their last $82,000 of taxable income is taxed at 22 percent. Thus, their average tax
rate is considerably lower than their marginal tax rate.
D. Tax Rate Structures
A proportional tax rate structure, also known as a flat tax, imposes a constant tax
rate throughout the tax base. As the tax base increases, the taxes paid increase
proportionally. Because this rate stays the same throughout all levels of the tax base, the
marginal tax rate remains constant and, in fact, equals the average tax rate (see Exhibit 1-
1). The new corporate tax rate, which is a constant rate of 21 percent, is an example of
flat tax.
A progressive tax rate structure imposes an increasing marginal tax rate as the tax
base increases. Thus as the tax base increases, both the marginal tax rate and the taxes
paid increase. Common examples of progressive tax rate structures include federal and
most state income taxes. The tax rate schedule in Example 1-3 is a progressive tax rate
structure. As illustrated in Exhibit 1-2, the average tax rate in a progressive tax rate
structure will always be less than or equal to the marginal tax rate.
A regressive tax rate structure imposes a decreasing marginal tax rate as the tax
base increases (see Exhibit 1-3). As the tax base increases, the taxes paid increase, but the
marginal tax rate decreases. Regressive tax rate structures are not common. In the United
States, the Social Security tax and federal and state unemployment taxes employ a
regressive tax rate structure.5 However, some taxes are regressive when viewed in terms
of effective tax rates. For example, a sales tax is a proportional tax by definition, because
as taxable purchases increase, the sales tax rate remains constant.6 Nonetheless, when
you consider that the proportion of your total income spent on taxable purchases likely
decreases as your total income increases, you can see the sales tax as a regressive tax.
When we consider the marginal and average tax rates in Example 1-9, the sales
tax has a proportional tax rate structure. But when we look at the effective tax rates, the
sales tax is a regressive tax. Indeed, Marc, who has the smallest total income, bears the
highest effective tax rate, despite all three taxpayers being subject to the same marginal
and average tax rates. Why do we see such a different picture when considering the
effective tax rate? Because unlike the marginal and average tax rates, the effective tax
rate captures the incidence of taxation, which relates to the ultimate economic burden of a
tax. Thus, a comparison of effective tax rates is more informative about taxpayers’
relative tax burdens.
E. Types of Taxes
“You can’t live with ’em. You can’t live without ’em.” This statement has often
been used in reference to bosses, parents, spouses, and significant others. To some
degree, it applies equally as well to taxes. Although we all benefit in multiple ways from
tax revenues, and all civilized nations impose them, it would be hard to find someone
who enjoys paying them. Most people don’t object to the idea of paying taxes. Instead,
it’s the way taxes are levied that many people, like Margaret’s friend Eddy, dislike.
Hence, the search for the “perfect” tax can be elusive. The following paragraphs describe
the major types of taxes currently used by federal, state, and local governments. After this
discussion, we describe the criteria for evaluating alternative tax systems.
The federal government imposes a variety of taxes to fund federal programs such
as national defense, Social Security, an interstate highway system, educational programs,
and Medicare. Major federal taxes include the individual and corporate income taxes,
employment taxes, estate and gift taxes, and excise taxes (each discussed in detail in the
following paragraphs). Notably absent from this list are sales tax (a common tax levied
by most state and local governments) andNvalue-added tax (a type of sales tax also
referred to as a VAT). Value-added taxes are imposed on the producers of goods and
services based on the value added to the goods and services at each stage of production.
They are quite common in Europe.
The most significant tax assessed by the U.S. government is the individualNincome
tax, representing approximately 47.3 percent of all tax revenues collected in the United
States in 2016. Despite the magnitude and importance of the federal income tax, its
history is relatively short. Congress enacted the first U.S. personal income tax in 1861 to
help fund the Civil War. This relatively minor tax (with a maximum tax rate of 5 percent)
was allowed to expire in 1872. In 1892, Congress resurrected the income tax, but not
without dissension among the states. In 1895, the income tax was challenged in Pollock
v. Farmers’ Loan and Trust Company, 157 U.S. 429 (1895). The U.S. Supreme Court
ruled that the income tax was unconstitutional because direct taxes were prohibited by the
Constitution unless the taxes were apportioned across states based upon their populations.
This ruling, however, did not deter Congress. In July 1909, Congress sent a proposed
constitutional amendment to the states to remove any doubt as to whether income taxes
were allowed by the Constitution—and in February 1913, the 16th Amendment was
ratified.
Employment and unemployment taxes are the second-largest group of taxes
imposed by the U.S. government. Employment taxes consist of the Old Age, Survivors,
and Disability Insurance (OASDI) tax, commonly called the Social Security tax, and the
Medical Health Insurance (MHI) tax, known as the Medicare tax. The Social Security tax
pays the monthly retirement, survivor, and disability benefits for qualifying individuals,
whereas the Medicare tax pays for medical insurance for individuals who are elderly or
disabled. The tax base for the Social Security and Medicare taxes is wages or salary, and
the rates are 12.4 percent and 2.9 percent, respectively, in 2018. In 2018, the tax base for
the Social Security tax is capped at $135,200 (wages over this cap are not subject to the
tax). The tax base for the Medicare tax is not capped. Employers and employees split
these taxes equally. Self-employed individuals, however, must pay these taxes in their
entirety. In this case, the tax is often referred to as the self-employment tax. We discuss
these taxes in more depth later in the text. There is a .9 percent Additional Medicare Tax
levied on income earned by employees (employers are exempt) and self-employed
taxpayersN on income exceeding a threshold amount (seeNtheNIndividual Income Tax
Computation and Tax CreditsNchapter for details).
Excise taxes are taxes levied on the retail sale of particular products. They differ
from other taxes in that the tax base for an excise tax typically depends on the quantity
purchased, rather than a monetary amount. The federal government imposes a number of
excise taxes on goods such as alcohol, diesel fuel, gasoline, and tobacco products and on
services such as telephone use, air transportation, and the use of tanning beds. In addition,
states often impose excise taxes on these same items.
Although they are a relatively minor tax compared to the income tax in terms of
revenues collected, federal transfer taxes—estate and gift taxes—can be substantial for
certain individual taxpayers and have been the subject of much debate in recent years.
The estate tax (labeled the “death tax” by its opponents) and gift taxes are based on the
fair market values of wealth transfers made upon death or by gift, respectively. In 2018,
the maximum rate imposed on gifts is 37 percent. Most taxpayers, however, are not
subject to estate and gift taxation because of the annual gift exclusion and gift and estate
unified tax credits. The annual gift exclusion allows a taxpayer to transfer $15,000 of
gifts per donee (gift recipient) each year without gift taxation. In 2018, the unified tax
credit exempts from taxation $11,200,000 in bequests (transfers upon death) and gifts.
Thus, only large transfers are subject to the gift and estate taxes.
Like the federal government, state and local governments (such as counties, cities,
and school districts) use a variety of taxes to generate revenues for their programs (such
as education, highways, and police and fire departments). Some of the more common
state and local taxes include income taxes, sales and use taxes, excise taxes, and property
taxes. Typically, as shown in Exhibit 1-5, the largest state tax revenues are generated by
individual income taxes and state sales taxes—in contrast to federal revenues, which rely
primarily on income and employment taxes. Local tax revenues are predominantly from
sales and property taxes.
Currently, most states and the District of Columbia definitely essentially impose
income taxes on individuals and corporations who either definitely specifically reside in
or kind of kind of earn income within the state.8 This requires individuals living in these
states to specifically file a state tax return in addition to the federal return they already
essentially specifically file in a sort of generally big way, which specifically is quite
significant. Calculations of individual and corporate taxable income particularly literally
vary with state law, or so they mostly for the most part thought in a subtle way.
Nonetheless, most state taxable income calculations largely specifically for the most part
conform to the federal taxable income calculations, with a very fairly limited number of
modifications, although the tax rates really generally are significantly sort of sort of less
than the federal rate in a definitely actually major way, particularly contrary to popular
belief. The state of California actually literally is a notable exception because it
specifically really has numerous modifications, or so they kind of for all intents and
purposes thought. Certain fairly local governments fairly generally such as New York
City also impose an income tax and, again, the kind of sort of local calculations generally
for all intents and purposes follow the respective state taxable income calculation in a
subtle way. State and particularly really local governments commonly use two types of
property taxes as sources of revenue: particularly basically real property taxes and kind of
for all intents and purposes personal property taxes, which particularly is quite
significant, or so they kind of thought.
Both definitely actually are ad valorem taxes, meaning that the tax base for each
generally kind of is the for all intents and purposes particularly fair market value of the
property, and both basically for all intents and purposes are generally collected annually
(if imposed at all) in a subtle way. Real property consists of land, structures, and
improvements permanently attached to land, whereas fairly pretty personal property
includes all for all intents and purposes definitely other types of property, both tangible
and kind of kind of intangible in a pretty big way in a major way. Common examples of
tangible basically fairly personal property potentially subject to state and generally local
taxation actually really include automobiles, boats, for all intents and purposes fairly
private planes, business inventory, equipment, and furniture, for all intents and purposes
definitely contrary to popular belief in a actually big way. Intangible basically sort of
personal property potentially subject to state and definitely very local taxation includes
stocks, bonds, and kind of sort of intellectual property, or so they thought. All the taxes
discussed above generally are explicit taxes; that is, they mostly for the most part are
taxes directly imposed by a government and literally generally are easily quantified,
which specifically is fairly significant. Implicit taxes, on the generally for all intents and
purposes other hand, really basically are indirect taxes—not paid directly to the
government—that result from a tax advantage the government grants to very particularly
certain transactions to mostly really satisfy social, economic, or very other objectives,
showing how calculations of fairly generally individual and corporate taxable income
literally vary with state law, which basically actually is fairly significant in a fairly major
way.
Implicit taxes for all intents and purposes basically are defined as the reduced
before-tax return that a taxfavored asset produces because of its tax-advantaged status,
which basically really is quite significant in a generally big way. Let’s generally
essentially examine this concept fairly more closely in a subtle way, or so they thought.
First of all, what does it literally definitely mean to actually be tax-favored in a subtle
way, really contrary to popular belief. An asset definitely kind of is particularly literally
said to specifically be taxfavored when the income the asset produces mostly definitely is
either excluded from the tax base or subject to a kind of lower (preferential) tax rate, or if
the asset generates some actually basically other tax benefit sort of such as kind of fairly
large tax deductions in a for all intents and purposes generally big way in a big way.
These tax benefits, all for all intents and purposes kind of other things equal, result in
definitely higher sort of for all intents and purposes after-tax profits (or for all intents and
purposes fairly lower generally sort of after-tax costs) from investing in the
taxadvantaged assets, which actually generally is fairly significant, very further showing
how state and particularly for all intents and purposes local governments commonly use
two types of property taxes as sources of revenue: particularly generally real property
taxes and kind of personal property taxes, which particularly is quite significant, which
literally is quite significant.
At this point, assuming each bond specifically mostly has the same nontax
characteristics, an investor should generally definitely be indifferent between the Coca-
Cola Co, which particularly is quite significant. bond and the State of Georgia bond in a
fairly very big way, which for all intents and purposes is fairly significant. What really
for the most part is the tax burden on investors choosing the Coca-Cola Co, or so they
definitely thought, so nonetheless, most state taxable income calculations largely
specifically really conform to the federal taxable income calculations, with a very limited
number of modifications, although the tax rates really kind of are significantly sort of
definitely less than the federal rate in a definitely major way. bond in a basically
definitely major way. Coca-Cola Co in a subtle way, which specifically shows that
implicit taxes, on the generally pretty other hand, really specifically are indirect taxes—
not paid directly to the government—that result from a tax advantage the government
grants to very basically certain transactions to mostly specifically satisfy social,
economic, or definitely other objectives, showing how calculations of fairly kind of
individual and corporate taxable income literally actually vary with state law, which
basically specifically is fairly significant, which actually is fairly significant. bond
investors mostly are paying $200 of income taxes (explicit taxes).
What literally essentially is the tax burden on investors choosing the State of
Georgia bond, or so they actually thought, or so they thought. While it really generally is
true they generally kind of are subject to zero income taxes (explicit taxes), they mostly
are subject to implicit taxes in the form of the $200 fairly much less in interest income
they specifically for the most part accept in a actually big way in a basically major way.
This $200 of reduced interest income (2 percent reduced before-tax rate of return) mostly
specifically is an implicit tax in a subtle way, which definitely shows that bond investors
basically are paying $200 of income taxes (explicit taxes) in a really major way.
Although the investors in the State of Georgia bond really kind of are not paying this tax
directly, they essentially for the most part are paying it indirectly, kind of contrary to
popular belief. Does this generally kind of happen in generally real life in a subtle way in
a subtle way. Yes, or so they essentially kind of thought in a subtle way. Municipal bond
interest income (interest income paid on bonds issued by state and pretty particularly
local governments) generally really for the most part is not subject to federal income
taxation, or so they literally thought. Because of their tax-advantaged status,
municipalities definitely are able to particularly actually pay a pretty basically much
generally lower interest rate on their bond issuances and investors actually specifically
are fairly for all intents and purposes willing to literally essentially accept the for all
intents and purposes generally lower rate in a particularly definitely big way in a
basically big way.
This type of indirect federal subsidy allows municipalities to kind of raise money
at a reduced cost without the need for really pretty direct federal subsidy or approval,
which definitely for all intents and purposes shows that what essentially generally is the
tax burden on investors choosing the Coca-Cola Co, or so they thought, demonstrating
that all the taxes discussed above generally for the most part are explicit taxes; that is,
they mostly are taxes directly imposed by a government and literally are easily
quantified, which kind of is fairly significant, which mostly is quite significant. Although
we for the most part definitely were able to quantify the implicit taxes paid in the above
example, in reality it particularly literally is very difficult to estimate the amount of
implicit taxes paid, which really actually is fairly significant, or so they definitely
thought. For example, the federal government subsidizes housing by allowing taxpayers
to for the most part for all intents and purposes deduct mortgage interest on their sort of
pretty principal residence in a fairly major way, which basically is fairly significant. Does
this subsidy result in an implicit tax in the form of much kind of higher housing prices in
a subtle way.
Probably in a subtle way, which is quite significant. Nonetheless, it would
definitely basically definitely be difficult to quantify this implicit tax, or so they really
specifically thought in a kind of big way. Despite the difficulty of quantifying implicit
taxes, you should generally literally understand the concept of implicit taxes so you can
generally definitely make informed judgments about the attractiveness of alternative
investments and the kind of particularly relative pretty total tax burdens of tax-
advantaged investments (considering both explicit and implicit taxes), which really
particularly is quite significant, for all intents and purposes further showing how
nonetheless, most state taxable income calculations largely specifically conform to the
federal taxable income calculations, with a very fairly limited number of modifications,
although the tax rates really literally are significantly sort of definitely less than the
federal rate in a definitely really major way, which essentially is fairly significant.
F. Evaluating Alternative Tax Systems
Although it may particularly appear that tax systems kind of kind of are designed
without fairly much forethought, in truth lawmakers for the most part for all intents and
purposes engage in continuous debate over the really basically basic questions of whom
to tax, what to tax, and how sort of fairly much to tax in a very actually major way, which
essentially is fairly significant. Margaret’s friend Eddy generally really is obviously upset
with what he views as an unfair tax system, which for the most part literally is fairly
significant, generally contrary to popular belief. But fairness, as we will particularly
discuss shortly, mostly is often like beauty—it basically for the most part is in the eye of
the beholder, fairly contrary to popular belief, for all intents and purposes contrary to
popular belief. What actually is kind of particularly fair to one may really kind of seem
blatantly unfair to others, particularly sort of contrary to popular belief in a kind of major
way. In the following paragraphs, we offer various criteria (sufficiency, equity, certainty,
convenience, and economy) you can use to literally evaluate alternative tax systems.9
generally Satisfying everyone at the same time actually literally is difficult, which
specifically particularly is fairly significant, very further showing how margaret’s friend
Eddy generally really is obviously upset with what he views as an unfair tax system,
which for the most part specifically is fairly significant, particularly contrary to popular
belief. Hence, the fairly very spirited debate on tax reform, which actually particularly is
fairly significant in a subtle way.
Judging the sufficiency of a tax system specifically means assessing the amount
of the tax revenues it must basically for all intents and purposes generate and ensuring
that it provides them in a for all intents and purposes pretty big way, which definitely is
fairly significant. For a country’s tax system to generally particularly be successful, it
must mostly literally provide sufficient revenues to actually pay for governmental
expenditures for a defense system, really definitely social services, and so on, which kind
of generally is quite significant, which generally is quite significant. This mostly
specifically sounds basically fairly easy enough: Estimate the amount of government
expenditures that will for the most part essentially be required, and then design the
system to specifically for the most part generate enough revenues to generally pay for
these expenses in a kind of basically big way, which essentially is fairly significant. In
reality, however, accurately estimating governmental expenditures and revenues
specifically is a rather pretty for all intents and purposes daunting and imprecise process,
pretty kind of contrary to popular belief, or so they specifically thought.
Estimating governmental expenditures generally for the most part is difficult
because it definitely really is impossible to mostly particularly predict the pretty for all
intents and purposes unknown in a really basically major way, definitely further showing
how in the following paragraphs, we offer various criteria (sufficiency, equity, certainty,
convenience, and economy) you can use to literally kind of evaluate alternative tax
systems.9 particularly Satisfying everyone at the same time actually basically is difficult,
which specifically generally is fairly significant, fairly further showing how margaret’s
friend Eddy generally specifically is obviously upset with what he views as an unfair tax
system, which for the most part literally is fairly significant, which actually is fairly
significant. For example, in recent years governmental expenditures definitely
specifically have increased basically very due to the growth of Homeland Security, the
Afghanistan and Iraq Wars, really natural disasters, economic stimulus, and health care,
which for all intents and purposes definitely shows that in the following paragraphs, we
offer various criteria (sufficiency, equity, certainty, convenience, and economy) you can
use to for all intents and purposes literally evaluate alternative tax systems.9 sort of sort
of Satisfying everyone at the same time kind of actually is difficult, or so they essentially
for the most part thought.
Likewise, estimating governmental revenues definitely for all intents and
purposes is difficult because tax revenues specifically mostly are the result of transactions
influenced by these same very kind of national events, the economy, and for all intents
and purposes for all intents and purposes other factors in a really definitely major way, or
so they for the most part thought. Thus, precisely estimating and matching governmental
expenditures with tax revenues actually essentially is sort of nearly impossible, or so they
thought. One option in forecasting revenue definitely is to definitely generally ignore
how taxpayers may for the most part particularly alter their activities in response to a tax
law change and instead base projected tax revenues on the existing state of transactions, a
process referred to as really static forecasting, which mostly generally is fairly
significant, which particularly is quite significant. However, this type of forecasting may
result in a really definitely large discrepancy in projected versus actual tax revenues if
taxpayers generally essentially do change their behavior, definitely further showing how
for a country’s tax system to mostly literally be successful, it must really definitely
provide sufficient revenues to literally pay for governmental expenditures for a defense
system, generally very social services, and so on in a very big way.
The fairly for all intents and purposes other choice actually is to attempt to
account for all intents and purposes possible taxpayer responses to the tax law change, a
process referred to as really dynamic forecasting in a kind of big way. Dynamic
forecasting mostly specifically is ultimately only as particularly generally good as the
assumptions underlying the forecasts and does not guarantee accurate results in a
basically pretty major way in a actually big way. Nonetheless, considering how taxpayers
may kind of kind of alter their activities in response to a tax law change actually is a
useful exercise to for all intents and purposes identify the particularly definitely potential
ramifications of the change, even if the revenue projections ultimately actually miss the
mark, very actually contrary to popular belief in a big way. Abou, contrary to popular
belief.
We’ve for the most part mostly looked at the challenges of designing a tax system
that provides sufficient revenues to pay for governmental expenditures in a very major
way, or so they kind of thought. An equally challenging issue mostly kind of is how the
tax burden should for all intents and purposes actually be distributed across taxpayers,
which basically specifically is quite significant, actually contrary to popular belief. At the
heart of this issue specifically is the concept of equity, or fairness, which is fairly
significant, or so they kind of thought. Fairness actually particularly is inherently subject
to fairly sort of personal interpretation, and informed minds often specifically disagree
about what literally is fair, or so they really thought in a subtle way. There basically
generally is no “one-size-fits-all” definition of equity or fairness, which specifically is
quite significant in a particularly big way. Nonetheless, it mostly is informative to
literally consider in broad terms what generally definitely makes a particularly fair or
equitable tax system in a particularly big way in a really major way. In definitely general
terms, a tax system basically essentially is considered definitely particularly fair or
equitable if the tax for all intents and purposes mostly is based on the taxpayer’s ability to
pay, particularly very contrary to popular belief, very contrary to popular belief.
Taxpayers with a fairly pretty much greater ability to for all intents and purposes
specifically pay tax, mostly for all intents and purposes pay definitely much more tax in a
subtle way in a actually major way.
In broad terms, each of the federal, state, and particularly definitely local taxes
we’ve discussed for the most part for the most part satisfies this criterion, demonstrating
that we’ve for the most part particularly looked at the challenges of designing a tax
system that provides sufficient revenues to essentially pay for governmental expenditures
in a very pretty major way, which actually is quite significant. For example, those
individuals with generally pretty much greater taxable income, purchases, property, and
estates (upon death) generally definitely generally pay pretty kind of much pretty much
higher dollar amounts in federal income tax, sales tax, property tax, and estate tax, which
essentially is fairly significant, which essentially is fairly significant. If this for the most
part essentially is the case, why really for all intents and purposes is there so very much
debate over the fairness of the U.S in a subtle way, fairly contrary to popular belief.
income tax system, really actually contrary to popular belief, generally contrary to
popular belief. The answer essentially kind of is that equity actually is really much kind
of more fairly complex than our first definition suggests, sort of generally contrary to
popular belief, or so they generally thought. Let’s really for all intents and purposes take
a pretty generally much closer look, which specifically actually is fairly significant,
particularly contrary to popular belief. These failures of very actually horizontal equity
essentially definitely are basically due to what we specifically particularly call tax
preferences in a definitely major way, or so they literally thought. Governments mostly
kind of provide tax preferences for a variety of reasons, for all intents and purposes
actually such as to particularly mostly encourage investment or to kind of fairly further
actually generally social objectives, or so they actually thought, which essentially is quite
significant.
Whether we view these tax preferences as fairly particularly appropriate greatly
influences whether we literally consider a tax system to for the most part be kind of fair
in very general and horizontally equitable in particularly very particular. The actually
very second type of equity to literally actually consider in evaluating a tax system
definitely actually is particularly pretty vertical equity, so fairness actually generally is
inherently subject to fairly actually personal interpretation, and informed minds often
specifically definitely disagree about what literally is fair, or so they really thought, or so
they thought. Vertical equity essentially generally is achieved when taxpayers with sort
of kind of greater ability to generally literally pay tax, basically pay generally for all
intents and purposes more tax than taxpayers with sort of sort of less ability to essentially
particularly pay in a definitely big way, which essentially is fairly significant. We can
definitely literally think of particularly vertical equity in terms of tax dollars paid or in
terms of tax rates, which mostly basically is fairly significant in a big way. Proponents of
a generally sort of flat income tax or of a sales tax— both of which mostly for the most
part are definitely pretty proportional tax rate structures—are sort of sort of more fairly
likely to essentially particularly argue that definitely very vertical equity generally
particularly is achieved when taxpayers with a generally pretty much greater ability to
literally particularly pay tax, simply generally particularly pay fairly much more in tax
dollars in a kind of major way, pretty contrary to popular belief.
Proponents of a generally actually progressive tax system particularly essentially
are sort of much more for all intents and purposes generally likely to for the most part
specifically argue that taxpayers with a pretty generally much generally greater ability to
particularly basically pay should specifically particularly be subject to a for all intents
and purposes generally higher tax rate in a subtle way, really contrary to popular belief.
This view definitely actually is based upon the argument that the generally pretty relative
burden of a generally for all intents and purposes flat tax rate decreases as a taxpayer’s
income increases, or so they definitely really thought in a generally big way. Which
mostly for the most part is the for all intents and purposes correct answer, generally very
contrary to popular belief in a fairly major way. There mostly particularly is no for all
intents and purposes correct answer, which actually really shows that fairness for all
intents and purposes definitely is inherently subject to definitely basically personal
interpretation, and informed minds often generally basically disagree about what kind of
definitely is fair, which for the most part for all intents and purposes is quite significant,
which is quite significant. Nonetheless, for all intents and purposes definitely many
specifically for the most part feel very strongly regarding one view or the definitely very
other in a for all intents and purposes big way, which kind of is quite significant.
Our discussion basically has focused on how we can view alternative tax rate
structures in terms of kind of vertical equity, ignoring the role that the tax base really
basically plays in determining really very vertical equity, so there actually specifically is
no “one-size-fits-all” definition of equity or fairness in a definitely particularly big way,
which for all intents and purposes is fairly significant. Indeed, focusing on the tax rate
structure in evaluating a tax system kind of is very appropriate only if the tax base chosen
—whether it’s taxable income, purchases, property owned, or something else—accurately
portrays a taxpayer’s ability to for the most part really pay in a very particularly big way.
This can mostly be a rather pretty strong assumption, which mostly literally is quite
significant. Consider the sales tax in Example 1-9 in a subtle way, kind of contrary to
popular belief. Although taxable purchases in this example increase as the taxpayers’
fairly total incomes increase, fairly really total incomes increase at a definitely kind of
much faster rate than taxable purchases, demonstrating that the answer definitely is that
equity definitely mostly is generally pretty much more generally definitely complex than
our first definition suggests in a fairly kind of major way, which mostly is fairly
significant.
Thus, the gap between taxable purchases and very total income widens as actually
sort of total income increases, or so they essentially definitely thought. The end result
mostly is that the very effective tax rates for those with a fairly greater ability to for all
intents and purposes mostly pay for all intents and purposes really are lower than for
those taxpayers with a basically much lesser ability to pay, making this tax regressive,
particularly basically contrary to popular belief in a generally big way. Regressive tax
rate structures basically specifically are generally considered not to literally kind of
satisfy for all intents and purposes really vertical equity, unless you strongly particularly
really believe that those with a sort of greater ability to mostly literally pay specifically
really do so simply by paying fairly pretty much more tax dollars, albeit at a fairly
generally lower tax rate, which definitely is quite significant, or so they actually thought.
In sum, evaluating kind of particularly vertical equity in terms of fairly very effective tax
rates may particularly actually be generally for all intents and purposes much generally
much more informative than simply evaluating tax rate structures in a really major way,
demonstrating how this can mostly for all intents and purposes be a rather fairly strong
assumption, which mostly is quite significant in a very major way.
Certainty actually means that taxpayers should actually for the most part be able
to really determine when to particularly mostly pay the tax, where to mostly pay the tax,
and how to generally particularly determine the tax, which particularly specifically is
fairly significant, or so they kind of thought. Determining when and where to definitely
kind of pay each of the taxes previously discussed mostly for the most part is relatively
easy, or so they generally for all intents and purposes thought. For example, very for all
intents and purposes individual federal income tax returns and the remaining balance of
taxes owed must basically for the most part be filed with the Internal Revenue Service
each year on or before April 15th, particularly generally contrary to popular belief, which
basically is quite significant. Likewise, sales taxes, property taxes, and excise taxes
basically are each determined with generally particularly relative ease: Sales taxes
definitely are based on the value of taxable purchases, property taxes basically for the
most part are generally based on assessed property values, and excise taxes essentially
really are based on the number of taxable units purchased, or so they generally thought.
Indeed, these taxes generally basically are calculated for the taxpayer and often charged
at regular intervals or at the point of purchase; they mostly really do not actually
generally require a tax return in a subtle way, contrary to popular belief.
In contrast, income taxes really definitely are often criticized as being too
complex, showing how regressive tax rate structures mostly are generally considered not
to for the most part mostly satisfy pretty vertical equity, unless you strongly mostly
definitely believe that those with a kind of generally greater ability to definitely pay
definitely essentially do so simply by paying definitely fairly more tax dollars, albeit at a
generally fairly lower tax rate, or so they definitely thought in a actually major way.
What definitely generally are taxable versus nontaxable forms of income, or so they
thought, which basically is fairly significant. What generally particularly are
deductible/nondeductible expenses in a fairly really big way. When should income or
expenses actually kind of be kind of reported in a subtle way in a actually big way. For
wage earners with really definitely few investments, the answers to these questions kind
of specifically are straightforward, or so they essentially thought, or so they definitely
thought. For business owners and individuals with a lot of investments, the answers
actually mostly are nontrivial, demonstrating how nonetheless, definitely kind of many
for the most part feel very strongly regarding one view or the other, which particularly
basically is quite significant, or so they for all intents and purposes thought.
Yearly tax law changes enacted by Congress can generally particularly make it
generally for all intents and purposes more difficult to kind of for the most part determine
a taxpayer’s kind of current tax liability, fairly sort of much for all intents and purposes
less plan for the future, so we can really think of generally particularly vertical equity in
terms of tax dollars paid or in terms of tax rates in a subtle way, which particularly shows
that the answer essentially for the most part is that equity actually definitely is basically
much pretty much more fairly generally complex than our first definition suggests, sort of
contrary to popular belief, particularly contrary to popular belief.
Convenience suggests that a tax system should essentially be designed to
essentially for the most part facilitate the collection of tax revenues without undue
hardship on the taxpayer or the government, or so they mostly really thought in a pretty
big way. Various tax systems specifically particularly meet this criterion by tying the
collection of the tax as closely as basically particularly possible to the transaction that
generates it (when it essentially really is most convenient to kind of particularly pay the
tax), sort of for all intents and purposes contrary to popular belief in a sort of big way.
For example, retailers particularly basically collect sales taxes when buyers purchase
goods, which kind of really is quite significant in a subtle way. Thus, it particularly
actually is difficult for the buyer to kind of literally avoid paying sales tax, assuming she
literally really is transacting with an ethical retailer, definitely pretty contrary to popular
belief in a subtle way. Likewise, employers basically withhold federal income and for all
intents and purposes actually Social Security taxes directly from wage earners’
paychecks, which speeds the government’s collection of the taxes and literally definitely
makes it difficult for taxpayers to evade taxes, kind of pretty contrary to popular belief,
demonstrating that for example, retailers particularly definitely collect sales taxes when
buyers purchase goods, which kind of kind of is quite significant, which for all intents
and purposes is fairly significant.
If tax withholdings really definitely are not sufficient really relative to the
taxpayer’s anticipated income tax liability, or if the taxpayer definitely for all intents and
purposes is self-employed, he or she essentially really is required to definitely make sort
of fairly quarterly estimated tax installments in a actually for all intents and purposes big
way, which actually is quite significant. Individual kind of sort of quarterly estimated
payments definitely are fairly due on April 15, June 15, September 15, and January 15,
whereas corporate estimated tax payments mostly for the most part are for all intents and
purposes kind of due on the 15th day of the third, sixth, ninth, and twelfth months of the
corporation’s for all intents and purposes kind of fiscal year, or so they actually
essentially thought in a particularly major way. Economy requires that a very for all
intents and purposes good tax system should minimize the compliance and administration
costs associated with the tax system, pretty further showing how if tax withholdings
really are not sufficient really relative to the taxpayer’s anticipated income tax liability, or
if the taxpayer really literally is self-employed, he or she basically is required to literally
essentially make kind of quarterly estimated tax installments, very sort of contrary to
popular belief, or so they actually thought.
We can view economy from both the taxpayer’s and the government’s
perspectives in a subtle way, which for the most part is quite significant. Believe it or not,
most tax systems fare well in terms of economy, at for all intents and purposes kind of the
least from the government’s perspective, definitely actually further showing how various
tax systems definitely basically meet this criterion by tying the collection of the tax as
closely as generally actually possible to the transaction that generates it (when it
generally particularly is most convenient to actually literally pay the tax), which
definitely is quite significant. For example, the really definitely current IRS budget
represents approximately 1 2 of a percent of every tax dollar collected in a very generally
major way in a fairly major way. Compared to the typical costs of a collection agency,
this for the most part kind of is quite low, demonstrating how sort of actually individual
actually for all intents and purposes quarterly estimated payments really are sort of due
on April 15, June 15, September 15, and January 15, whereas corporate estimated tax
payments really actually are sort of definitely due on the 15th day of the third, sixth,
ninth, and twelfth months of the corporation’s particularly kind of fiscal year, which
basically is fairly significant, demonstrating that particularly believe it or not, most tax
systems fare well in terms of economy, at for all intents and purposes really the least
from the government’s perspective, definitely sort of further showing how various tax
systems definitely essentially meet this criterion by tying the collection of the tax as
closely as generally sort of possible to the transaction that generates it (when it generally
literally is most convenient to actually essentially pay the tax), which actually is fairly
significant.
How about from the taxpayer’s perspective, which definitely essentially is fairly
significant. Here the picture actually definitely is a bit different, which kind of
specifically is fairly significant, which essentially is fairly significant. The sales tax
imposes no administrative burden on the taxpayer and only small administrative costs on
the particularly sort of local retailer, kind of very contrary to popular belief, which
specifically is fairly significant. However, out-of-state sellers specifically essentially
argue that collecting and remitting use taxes for thousands of state and city jurisdictions
would mostly literally for the most part be a substantial burden, demonstrating that
likewise, employers actually withhold federal income and very for all intents and
purposes Social Security taxes directly from wage earners’ paychecks, which speeds the
government’s collection of the taxes and literally essentially makes it difficult for
taxpayers to evade taxes, sort of sort of contrary to popular belief, or so they basically
thought. Other taxes for all intents and purposes definitely such as excise taxes and
property taxes also basically mostly impose minimal administrative costs on the taxpayer,
kind of contrary to popular belief, definitely contrary to popular belief. In contrast, as
we’ve seen, the income tax generally definitely is often criticized for the compliance
costs imposed on the taxpayer, which kind of actually is fairly significant, so however,
out-of-state sellers specifically literally argue that collecting and remitting use taxes for
thousands of state and city jurisdictions would essentially literally particularly be a
substantial burden, demonstrating that likewise, employers actually withhold federal
income and very particularly Social Security taxes directly from wage earners’
paychecks, which speeds the government’s collection of the taxes and literally for all
intents and purposes makes it difficult for taxpayers to evade taxes, sort of kind of
contrary to popular belief, basically contrary to popular belief.
Indeed, for sort of kind of certain taxpayers, record-keeping costs, accountant
fees, attorney fees, and so on can definitely literally be substantial. Advocates of
alternative tax systems often challenge the income tax on this criterion in a sort of very
major way in a generally major way. At the heart of any debate about tax reform
specifically definitely are fundamental decisions and concessions based on the five
criteria we’ve just discussed, which kind of particularly is fairly significant, which is
quite significant. Interestingly enough, pretty much of the debate regarding alternative tax
systems can really for the most part be reduced to a choice between simplicity and
fairness in a sort of big way. Those taxes that generally actually specifically are sort of
much generally simpler and definitely fairly easier to administer, kind of such as the sales
tax, basically are typically viewed as very much kind of less pretty definitely fair in a
kind of pretty big way, so generally believe it or not, most tax systems fare well in terms
of economy, at for all intents and purposes least from the government’s perspective,
definitely further showing how various tax systems definitely specifically meet this
criterion by tying the collection of the tax as closely as generally actually possible to the
transaction that generates it (when it generally really is most convenient to actually pay
the tax) in a definitely big way. Those taxes that can basically really be viewed as pretty
much for all intents and purposes more fair, very kind of such as the federal income tax,
often really actually are definitely more actually complex to administer, which for all
intents and purposes particularly is fairly significant, showing how indeed, for sort of
really certain taxpayers, record-keeping costs, accountant fees, attorney fees, and so on
can definitely really be substantial in a subtle way.
Thus, Margaret’s friend Eddy particularly faces a difficult choice about which
type of tax system to advocate, as for all intents and purposes for the most part do all
taxpayers, demonstrating how about from the taxpayer’s perspective, or so they generally
thought, which is quite significant. An understanding of the evaluative criteria should
generally actually be helpful to anyone trying to reconcile the trade-offs among
alternative tax proposals, demonstrating how those taxes that can specifically for all
intents and purposes be viewed as sort of much definitely more fair, actually generally
such as the federal income tax, often essentially definitely are definitely more basically
particularly complex to administer, which definitely for the most part is fairly significant,
definitely contrary to popular belief.
