Introduction Are people unaffected by tax increase if they pay zero in taxes afterwards? No, consumption may have changed in response to the tax increase Bundle consumed is less desirable Excess burden is a loss of welfare above and beyond the tax revenues collected
Introduction This lesson will address questions related to different levels of government: How should various responsibilities be allocated to different levels of government? Is decentralized government decision making desirable? Are locally raised taxes a good way to pay for services provided locally?
Basic Structure Fiqure 15.1 shows the series of steps used to compute a person's tax liability. Step 1: Compute Adjusted Gross Income (AGI) Step 2: Convert AG/ into taxable income by subtracting exemptions and deductions Step 3: Compute tax due by applying a rate schedule, and subtracting tax credits