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University of North Carolina School of Law
Bryant, A. Christopher

Conceptual Definitions

Alternative Tax Systems

Consumption Tax

Where C = I – S
Could do this by allowing unlimited deduction for savings & subject the rest to progressive tax schedule.
some people advocate a progressive consumption tax

Value-Added Tax (VAT)
Sales Tax
Excise Taxes

Why impose heavy taxes on cigs & alcohol? Govt does this so that the cost of the product reflects the true cost of the product to society.

Smokers raise cost of health care
Drunks cause more accidents.

Income-Tax Base

We tax realized events such as:

Any type of benefit—cash, property, services, accommodations, meals, etc.
Includes benefits received indirectly (e.g., someone else pays your taxes for you).
Claim of Right Doctrine—if you have unrestricted access to obtain a benefit, then it’s income

We do not tax…

Benefits received out of necessity (e.g., actual damages from lawsuit)
Return of Capital—return of your original investment.
Imputed Income

When people use their own property for their own benefit.
It’s not included in gross income because it raises all kinds of valuation and liquidity issues that we’d rather not deal with.

Mowing your own lawn instead of hiring someone to do it.
Living in your home without paying yourself rent.
Policy—creates inefficient economy, since it’s a more efficient use of your time to use your trade or skill than to try to do someone else’s for your own benefit.


“Above the Line” Deductions yield Adjusted Gross Income (AGI)

Why do we even bother calculating AGI?

Thought to be a better measure of income
The deductions for can be claimed by everyone
Better to use for statistics and economic policy
ATL deductions are always better than personal deductions (BTL)

Allow you to defer your income
Benefit of Deferral:

A dollar received today is worth more than a dollar received in the future
Want to defer as much

e income disparities in society

Under the theory of ability-to-pay system

Proportional Tax

If taxed at a stated % of income, regardless of the income-level.

Flat Tax

People that earn more are taxed less.
Ex: Social security; also a sales or VAT

Combo Systems:

SS tax is proportional on the first ~$97K, after that it is regressive.

Gross Income: The Starting Point

The basic formula for calculating how much tax you owe to the federal government each year:

Gross Income
– Deductions for AGI §62.
Adjusted Gross Income (AGI)
– Deductions from AGI (standard or itemized)
– Personal Exemptions §151.
Taxable Income §63.
x Taxable Rate
Tax Liability
– Credits
– Withholding