ACC 4250 SINGAPORE - Flash (Large) - 20110515 12.19.55AM
Welcome to 4250
for chapter one.
Professor Golub here.
This first chapter covers a broad overview of
the general landscape of taxation in particular, we'll go through some of the categories of taxes.
and some of the introductory concepts and principles relating to taxation.
In a slide number two
we list the basic good categories
which American tax law focuses on from income taxes to property taxes to sales taxes.
inheritance taxes, state taxes,
sin taxes, which are taxes associated with
cigarettes, liquor consumption of goods considered to be
And as you can well see there are
quite a variety of taxes.
Justice Oliver Wendell Holmes.
in one of his opinions.
argued that taxes are what were declared- taxes are what we pay for a civilized society.
Basically we ought to understand from the outset
that the purpose of taxation is to fund government revenue.
government sources, part of the budget that
builds the budget, the revenue side and ultimately
is the basis for making spending decisions.
areas of the economy in which it is deemed that the private market
will not participate.
For example, national defense and military.
much more economical for the government to take on this responsibility.
then individuals themselves.
police protection on an individualized basis.
and it's less costly.
There are many situations, many examples where the private market fails and the need for government.
especially in an expanding.
growth-oriented economic base.
providing so many different resources, natural resources.
human intervention, human transactions.
in the case of the American system, American economy.
one can argue that
it would be virtual chaos without the United States government.
Justice Learned Hand is a well known second circuit appellate court judge.
for his famous remarks
regarding the requirements for individuals and taxpayers
to pay their voluntary contribution. What does that mean?
Under the tax law it doesn't mean that you volunteer to pay a tax and if you
don't want to volunteer you don't have to pay the tax.
What it does mean is that individuals
can arrange their affairs in such a manner that
they can pay the least amount of tax.
that is within.
that is proper within the tax law.
The expansion of the tax law.
over the past fifty years has been enormous.
Slide number five details that issue.
Certainly if you look at the bars in the year 2005
the amount of words associated with the tax code alone has imploded.
This is further exemplified in slide 6
you can see the breakdown between the internal revenue code
the regulations that are issued by the IRS in explaining the code
and then the combination of two.
In slide seven.
the characteristics of a tax.
Transfer from resources from the private to the public sector.
Not penal, not a beneficiary charge.
Its based on predetermined criteria.
and therefore we
prefer certainty and predictability.
And the tax can be or should be based somewhat on a
economic and social goals and objectives, if not totally.
It's compulsory not confiscatory
this isn't a taking of property without due process
which is covered under the fifth amendment of the Constitution.
The government can't just decide to walk in take your property.
it must have a legal basis to do so.
The criteria that
it be certain and predictable is very important.
The greater the tax law is uncertain and less predictable
the greater the problems associated with.
calculation of the tax, collection of the tax,
who was liable for the tax,
and how the tax ought to be collected
in terms of the procedural process.
So certainty in predictability is very important- the
greater the area of disagreement
the more likely the disputes and the less likely there will be compliance.
The degree to which the tax law has changed
going forward over the past thirty to forty years has been dramatic.
Here's some of the history of major tax acts
national federal tax acts passed
on Slide 8
from nineteen eighty one through ninety eight
and then further we see the instruments of fiscal policy.
the number of major tax bills
of from two thousand one to two thousand ten.
For example, 2005 three major bills were passed
covering major events. One
once particular the Katrina
disaster and certainly one can understand that
the need for a federal tax that to
take care of situations where people were basically no longer living out of their
home or running their businesses which were destroyed in that major event.
The tax laws as we stated
also ought generally have as a purpose are used as instruments of social policy.
So not only do we do taxes for
the purpose of motivating economic behavior and generating revenue for the government,
but in many cases we use a tax law to further various social policies.
Some of the key ones are education
we provide or allow all kinds of
tax incentives to promote training, building educational
skills and training and building our labor before.
Notice within those
-the sections are cited-
that little symbol next to one seventeen is a section of the tax law,
and notice also that you have
which all have different computational effects and tax results.
Other examples of social policy
is creating incentives for individuals to transfer current consumption to future consumption.
especially created in individual retirement accounts.
They may lead to postponing or deferring
taxes to a future period.
or in fact may
eliminate the tax at all based on the holding period of the account such as a Roth IRA.
In Slide eleven we have a few more examples.
has from time to time
a factor or a target for which the tax laws have been utilized in order to promote
employment during recessionary periods.
We use a tax law to provide incentive for increased innovation through research and experimentation
or we call research and development credits or research development deductions
when can you get a credit is preferred to deduction
and we'll discuss the tax terminology in much more detail as we further into the course.
We allow charitable deductions
and we also use the tax laws to encourage adoption, child and dependent care,
and charitable and other natural resources
here's to another concept and the of use.
got to analyze.
with of attacks the New of white or of the daily the tax being applied in a revenue neutral fashion were out of neutral fashion upon individual.
and more importantly what is it that had the government has given up.
flying allowing a particular deduction or credit for exclusion to.
both utilize plate.
the most greater or tax expenditures.
by billions of dollars in two thousand eight.
well it didn't like thirteen.
and as you can to the.
the mortgage interest deduction.
capital gains solutions on the sale Holmes celebrate depreciation.
the sorrel old theory of special favorite.
the Lal individuals to.
of particular tax.
legitimately at the same time of the ball before foreign or opportunity course that the government and the colt has given up.
in exchange for allowing the taxpayers to not have to come with attacks on the decision.
still the tradeoff is that the government is saying.
we will take a less revenue on a national basis till the last we distribution away from those who engage in the activities of those who don't.
we will all Lal those individuals twenty two these activities activities actually redistribute the tax for themselves.
country first approach to the him in analyzing the effect of the area tax burden.
fold in by which other.
operate so in the general.
generally the definition of income.
it becomes your base.
it includes a series of hikes transactions and events to create income employment income.
corporate profits it said.
that is the base and then the taxes on rate on the Bay.
lots of debate in America regarding whether of the federal income tax or to be changed to a.
value added consumption tax are also wealth tax inheritance tax.
um well transfer tax.
Geary said the sales news taxes in excise taxes on transactions.
um and Leslie.
franchise tax or example with the state formally.
that's exactly tax on.
corporate enterprises other enterprises that do business within a particular state.
it's attacks for the privilege of doing business within that state.
what's a good tax for the.
light to scheme will tell you that to some of it criteria include our asylum purple equity.
basically individuals who are residing in the same position generally situated individuals or to be paying the same tax same time.
we recognize that.
um less fortunate individuals.
oh what to not having played tax burden.
then individuals when have benefited greatly from the system.
and that law attorney.
of good tax also one of the temple in the complex convenient especially with respect to collection.
one of the economically efficient does well meaning you know what it we or to have a neutral as much neutrality in terms of unintended consequences.
on theory is activity we do in the economy.
alas we're actually.
encouraging the particular tax for purposes of penalizing certain economic behavior.
we're encouraging was subsidizing economic behavior.
so we have of late.
problem or a of of manipulation issue here fine tuning will speak what we want the tax which even let me productive.
in other words by that what we mean is if tax starts to produce it so much incentives that.
for example people don't wanna work anymore.
and that's a non productive tax will have less overall economic world in society and more people seeking leisure.
and avoiding the pain of attacks because in essence the fruits of the Labor of being taken away by the government becomes contested Tories.
and the certainty criteria once again it's extremely important certainty.
again it is important because as the tax law becomes ambiguous.
and on certain the likelihood of controversy to be in litigation right dramatically.
individuals are encouraged to.
the key areas outside of can of came in and non compliance.
and the government has a much harder time of explaining or.
enforcement of compliance.
that takes place because government.
the with and Driscoll write numerous regulations and rules and again that starts to push into the complexity or so certain the complexity.
to some extent go into the hands of uncertainty and simplicity.
at certain times start to work together as well.
um I were tax structure.
gives you the basic formula of base.
time to rake and the tax.
the key question so what should be taxes in the base.
and what they selected.
and in this various we concepts structures that we have a progressive brain to aggressive rate to the rate increase in house should increase with good.
what is considered to be up all along the vertical scale of individuals who are court have the ability of a greater amount into the system and should they be.
should they be quiet to pay more because they've benefited more.
an example out of the two twenty ten attacks or for a single individual earning eighty two thousandfive hundred and taxable income.
that's not is over ruling comment taxable income from.
so after we take into account.
personal deductions and certain other special.
deductions to which it was cool the adjusted gross income you don't see that in here.
but that's important.
and um you know that in terms of we will look at those specific issues as we go went to the chorus.
it is going to taxable income of eighty two thousandfive hundred the marginal tax rate is twenty eight percent.
um add to above that certain bracket in the mail.
sixteen seventy one was twenty eight percent.
oh twenty two for more.
eighty two four.
the average tax rate to this individual twenty point four percent in the notice.
we also its own into example something called tax exempt bonds.
tax exempt bonds generally municipal bonds issued by the state.
in this country.
and those state.
generally of July so we was dead and revenue to fund government operations.
their favorite in the sense that the federal government won't tax that.
think of the interest income associated from those tax example on.
burned by the individual.
there are tree last between what we call tax exempt bonds and taxable bond.
and of keeping ahead of the bracket which you can study on your own name.
we go to white twenty.
we'd start to discuss the concept of the tax rate tax rate structures.
Seoul the rates they think will value.
the bloke base.
an example of that is sales tax property tax.
progressive taxes one with a rate nearly directly with the base.
in an increase in tension.
income and estate gift taxes.
regressive taxes one with the rate theory is inversely with the Bay.
and sometimes that can be a sales tax.
in a regressive and into the regressive component.
a proportional tax flat tax.
here in the US white twenty one we have one and looking at marginal tax rates and hearing two different taxpayers.
we can see that.
the after tax healed.
these individuals based on the percentage of love.
income associated with taxable on.
first municipal bond.
it's a lot.
Indiana bonds on Muni bond.
the ADT in the barn.
or taxable bar still that means a thousand dollar bond.
earn body of an individual on the ATT bonds.
would you be hundred dollars the year.
sorry but I shall eight percent to eighty.
for a row.
debate one thousand.
photo one thousand L bottle be.
the oval with.