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Advanced Placement Microeconomics Chapter 31 Public Choice Theory Taxation Part II Pgs 650-660 Apportioning the Tax Burden I Benefits Received vs Ability-To-Pay Benefits Received Principle of taxation asserts that households and business should purchase the goods and services of government in the same way they buy other commodities Those who benefit from the governments goods and services should pay the taxes necessary to finance them Ex If Talley drove on Route 287 to work everyday she should be the one paying for the roads service and maintenance costs Be warned of the problems government has no way of determining the benefits each individual household and business receive from defense education and local police Also this principle cannot be logically applied to income redistribution programs Ability-To-Pay Principle of taxation asserts that the tax burden should be apportioned according to taxpayers income and wealth So this means that homes with larger incomes and bigger businesses would have to pay more taxes both absolutely and relatively than those with smaller incomes Big Problem There is no scientific way of measuring someones ability to pay taxes Apportioning the Tax Burden II Progressive Proportional and Regressive Taxes Progressive Taxes the average rate increases as income increases Such a tax claims not only a larger absolute dollar amount but also a larger percentage of income as income increases Ex Income and most types of Federal State Taxes Regressive Taxes the average rate decreases as income increases Such a tax takes a smaller proportion of income as income increases A regressive tax may or may not take a larger absolute amount of income as income increases Ex State Sales Tax Proportional Taxes the average rate remains the same regardless of size of income Most taxes are either progressive or regressive there are not that many proportional This is since many
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