merged

cut of 1964. The top rate was lowered to 50% in 1982 and to 28% in 1988. The top rate was
increased to 31% in 1991, and to 39.6% in 1993. The top rate was lowered to 35% in 2003. The
top rate was increased to 39.6% in 2013.
This table indicates the tax rates for single taxpayers for the year 2015.
Taxable Income
Tax Rate
$0 – $9,225 10%
9,226– 37,450 15%
37,451– 90,750 25%
90,751 – 189,300 28%
189,301– 411,500 33%
411,501– 413,200 35%
over 413,201 39.6%
Study Guide for Chapter 13
Chapter Summary for Chapter 13
Taxes can be classified as proportional, progressive, or regressive. A proportional tax imposes
the same tax rate on all levels of income, and thus does not change the distribution of income. A
progressive tax imposes higher tax rates on higher levels of income, and thus changes the
distribution of income by making it more equal. A regressive tax imposes higher tax rates on
lower levels of income, and thus changes the distribution of income by making it more unequal.
Most taxes imposed in the U.S. are regressive. Since lower income households consume a
higher percentage of their incomes compared to higher income households, any tax that
increases the prices of non-luxury goods will be regressive. Thus, sales and property taxes tend
to be regressive.
The four largest federal taxes are the personal income tax, the social security tax, the corporate
income tax, and federal excise taxes. Of the four major federal taxes, the social security tax and
federal excise taxes are regressive. The social security tax is partially hidden from the taxpayers.
The social security system encourages retirement and rewards long life.
The essential purpose of taxation is to fund government operations. A good tax is one which
imposes as little excess burden as possible. The sources of excess burden are; (1) the cost for
the government to collect the tax, (2) the cost for the taxpayers to comply with the tax, and (3) the
deadweight loss of the tax. To minimize deadweight loss, a tax should be broad-based, should
have low rates, and should be imposed on inelastic goods.
The federal personal income tax imposes a large excess burden. Because the tax is extremely
complicated, the collection and compliance costs are high. The presence of many loopholes
increases the excess burden by; (1) narrowing the tax base, (2) necessitating higher tax rates,
and (3) making the tax more complicated. The federal personal income tax would impose a
smaller excess burden if it were simpler and had fewer loopholes.
Since the federal personal income tax is a progressive tax, the burden of the tax falls more
heavily on higher income taxpayers. The bulk of federal personal income taxes are paid by the
top 10 percent of income earners.
Years of budget deficits have led to a huge national debt. The current generation bears the
burden of deficit spending to the extent that private consumption is crowded out by increased
government use of resources. Future generations bear the burden of deficit spending to the
extent that; (1) deficit spending favors current consumption rather than investment and (2) the
deficit spending is financed by foreign creditors.
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
13 - 11 Taxes, Deficits, and the National Debt