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Seton Hall Unversity School of Law
Coverdale, John F.

Tax Outline

** If exam question asks about tax consequences à always look at basis
I Introduction
1. Welcome to Tax
– Federal Income Taxation
– Specifically individuals
– Personal income taxes represent 48% of federal revenue
– Out of every $1.00
· Federal Gov takes approx. 20c or 20%
· State takes approx 10c or 10%
· Total of 28% of each dollar goes to taxes
– United States is the 3rd most lightly taxed industrial society
· We get less than other countries for out tax money
· Only Turkey and Australia pay less
– Outlays – Where does the Money Go?
– Little on education
– Majority à 35% on Social Security, Medicare & other retirement
– Not a lot of discretionary spending
– Social Security
– You pay 7 ½ % and employer pays 7 ½ %
– Arguable that the employers portion really comes out of your wages because without it you would make more money
– Real Incidence
– Person who tax is shifted onto
– Not the same as legal incidence
– E.g. Corporations are liable for tax, but the tax is really paid by share holders, workers, and consumers

2. Bases & Rates
– All taxes are conceptually Base X Rate
– Base
– Income
– Goods à Sales tax
– Excise Taxes à luxury tax, targeted at items like alcohol
– Property Tax à most states only tax real property, but can also be on some larger items like cars and boats
– Sales Tax
– More broadly is a transfer tax
– In Europe called a value added tax (VAT)
– May also view this as a consumption tax à items of final consumption
– Rate
– Progressive à as base increases the rate also increases
– Flat/ Proportional à everyone pays the same percentage
– Regressive à as base increases the rate decreases

– Progressiv

– Sufficiency à Will tax raise the required amount?
– Ways to Collect
– Taxes are really charges for government services
– Two Ways to Collect
· Benefit
o E.g. toll roads, postage
o Not always thought of as taxes
· Ability to pay
o Fire, police, military, education
o Logic à the more resources you have, the more you are able to pay
o Property tax is an example à amount of property you have is somehow related to how much you can pay
o Income tax is meant to be a measure of ability to pay
– In defining the gov takes into account certain things like medical expenses
– Taxable income may vary widely from actual income
o All sorts of judgments go into defining