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17.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

519

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520

Questions and Problems . . . . . . . . . . . . . . . . . . . . . . . . . . 520

Advanced Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 521

PART IV CHAPTER 18 Taxation in the United States


and Around the World . . . . . . . . . . . . . 523
Taxation in . . . . . . . . . . . .

Theory and 18.1 Types of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . 524


Taxes on Earnings 524
Practice
Taxes on Individual Income 525
Taxes on Corporate Income 525
Taxes on Wealth 525
Taxes on Consumption 525
Taxation Around the World 525

18.2 Structure of the Individual Income Tax


in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527
Computing the Tax Base 527
Tax Rates and Taxes Paid 529
Application: The Coming AMT Timebomb 531

18.3 Measuring the Fairness of Tax Systems . . . . . . . . . . . . . 532


Average and Marginal Tax Rates 532
Vertical and Horizontal Equity 533
Measuring Vertical Equity 534
Application: The Political Process of Measuring Tax Fairness 534

18.4 Defining the Income Tax Base . . . . . . . . . . . . . . . . . . 536


The Haig-Simons Comprehensive Income Definition 536
Deviations Due to Ability-to-Pay Considerations 537
Deviations Due to Costs of Earning Income 538
Application: What Are Appropriate Business Deductions? 538

18.5 Externality/Public Goods Rationales


for Deviating from Haig-Simons . . . . . . . . . . . . . . . . . . . . . 539
Charitable Giving 540
Spending Crowd-Out Versus Tax Subsidy Crowd-In 540
Consumer Sovereignty Versus Imperfect Information 542
Housing 543
Empirical Evidence: The Social Benefits of Homeownership 545
Tax Deductions Versus Tax Credits 546
Application: The Refundability Debate 547
Bottom Line: Tax Expenditures 549

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