Econ help If the government is going to help our economy accomplish the desirabl

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Econ help

If the government is going to help our economy accomplish the desirable tasks that the market cannot, we are going have to pay for those tasks by imposing taxes on the members of our society. How shall we do that equitably and efficiently? (This is the topic of chapters 8 & 12 (with a look back at chapter 6) 1. What is purpose of taxes in an economy; why are they inevitable? (3) 2. What is meant in economics by the "incidence" of a tax? (2) 3. What is the intent of the corporate income tax (that is, when the government imposes this tax, who do we think we want to have pay the t What is the incidence of the corporate income tax (that is, who actually ends up paying the corporate income tax indirectly)? (3) 4. What is the intent of a luxury tax (that is, who do we want to be paying a luxury tax?)? Why is it that the incidence of a luxury tax is not what we intended? (3) 5. In 2016, the payroll and Medicare taxes levied on U S. workers totals 15.3% of wages. One half of this is taken out of workers' wages and the other half is paid by the employer. a. But according to your textbook, can government really divide that burden equally? (1) b. What is the incidence of payroll taxes (who really pays and h (2) c. If, all other things equal, the demand for labor was highly "inelastic", where will most of the incidence of the payroll tax fall (that is who would bear most of the burden)? Be specific! Why won't this group bear the entire burden of the payroll tax?(3) 6. When we say that we want a tax to be "efficient", what do we want it to do? Be sure to explain. (3) 7. When we say we want a tax to be "equitable what do we want it to do? (2)

Explanation / Answer

1. Taxes are very much important for the survival of any economy. Taxes help in the distribution of wealth from rich to poor which is very important in any economy. The governmnet gets its revenue from tax collection only. The taxes are used for providing public goods. Also, taxes help to reduce the problem of negative externalities.

2. Tax incience refers to the burden of the tax faced by different groups(producers and consumers) in an economy. This burden depends on th elaticity of differnt groups.

3. A corporate tax is one which is imposed on the profits of companies and corporates. DIffrent companies pay differnt taxes based on their profits. The incidence of the tax basically falls on the shareholders as the tax is ultimately passed onto them.

4. Luxury tax is imposed on luxury , high end which are not considered necessary for survival. The basic pupose of the tax is to tax the rich but it is the poor people who produce luxury goods who ultimately bear the burden of this tax and tax hits them more severly.(reduced demand due to increased tax).

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