ECON 101 Lecture Notes - Lecture 4: Child Tax Credit, Progressive Tax, Flat Tax
1 May 2018
School
Department
Course
Professor
Economics 101
Lori Leachman
Part 4 • Lecture
• Trump budget: emphasis on war, not peace; expansionary
o Spending (overall increased spending)
▪ Cuts medicare, medicaid & food stamps funding
▪ Decrease funding for EPA, state department, foreign aid
▪ Increase spending on infrastructure (funding from state and from private sector)
▪ Increase spending for homeland security (ex. the wall, immigration enforcement)
o Revenues (significant tax cut and decreased revenues)
▪ Cut corporate tax from 35 to 21%
▪ Create territorial system - foreign profits of US companies will go untaxed after paying a
certain threshold of foreign tax
▪ Accelerated depreciation - moves up timing to replace equipment - encourage capital
accumulation
▪ Eliminate tax breaks to orphan drugs, in kind exchanges (except real estate), fringe
benefits, R&D, limit interest expense deductions
▪ Increase standard deduction
▪ State, local income & sales/property tax capped @ 10k
▪ Increased child tax credit
▪ Caps interest deductions on debt
▪ Limits itemized deductions
▪ Chain CPI for indexing
▪ Raise estate tax exemption
o Issues
▪ Bigger deficit (decreased revenue and increased spending)
▪ Budget predictions assume 3% growth - increase deficit
▪ Interest rates are growing and will consume more of budget (due to inflation p)
▪ Debt/GDP > 100% of GDP - crisis provoking
▪ Tax cuts and increased spending causes budget problems
• State and local spending
o Revenues
▪ Transfers from Fed (40% state to local)
▪ Income/sales (state) & property tax (local) (55% state and 45% local)
▪ Fees for service (garbage, tolls...etc)
o Spending
▪ Education (20-33%)
▪ Public welfare (health care, food security, housing) (20-23%)
▪ Health & hospitals (5-12%)
▪ Transportation (5-8%)
▪ Other (prisons, policing, fire... etc) (25-30%)
• Tax Theories
o Benefits principle - those that benefit, pay the tax; justify excise taxes
o Ability to pay - those who have ability to pay, pay the tax; capital gains tax & progressive
o Horizontal Equity - those positioned similarly (income) pay similar amounts/rates
o Vertical Equity - those positioned differently (income) pay different amounts/rates
▪ Progressive income tax, flat tax adhere to all four principles
• Tax Structures
o Proportional tax - same % regardless of income level (ex. flat tax, value added tax, sales tax)
▪ Still increases tax amount as income increases
o Progressive - higher tax rates as income increases (ex. income tax)
o Regressive - lower tax rates as income increases (ex. sales tax & SS in reality due to income cap)
• Tax Examples
o Income tax: progressive
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Part 4 lecture: trump budget: emphasis on war, not peace; expansionary, spending (overall increased spending, cuts medicare, medicaid & food stamps funding, decrease funding for epa, state department, foreign aid. Increase spending on infrastructure (funding from state and from private sector) Increased child tax credit benefits, r&d, limit interest expense deductions. Increase standard deduction: state, local income & sales/property tax capped @ 10k, caps interest deductions on debt, limits itemized deductions, chain cpi for indexing, raise estate tax exemption. Issues: bigger deficit (decreased revenue and increased spending, budget predictions assume 3% growth - increase deficit, debt/gdp > 100% of gdp - crisis provoking, tax cuts and increased spending causes budget problems. Interest rates are growing and will consume more of budget (due to inflation p: state and local spending, revenues, transfers from fed (40% state to local, fees for service (garbage, tollsetc)
