It is hard to imagine anything that has not been taxed at one time or another Windows, closets, buttons, junk food, salt, death—all have been singled out for special taxes In general, taxes fall into one of four primary categories Income taxes are imposed on the income earned by a person or firm; property taxes are imposed on assets; sales taxes are imposed on the value of goods sold; and excise taxes are imposed on specific goods or services Figure 15.6 "Sources of Government Revenue, 2007" shows the major types of taxes financing all levels of government in the United States Personal Income Taxes The federal personal income tax is the largest single source of tax revenue in the United States; most states and many cities tax income as well All income tax systems apply a variety of exclusions to a taxpayer’s total income before arriving at taxable income, the amount of income that is actually subject to the tax In the U.S federal income tax system, for example, a family deducted $3,200 from total income earned in 2005 for each member of the family as part of its computation of taxable income Income taxes can be structured to be regressive, proportional, or progressive Income tax systems in use today are progressive In analyzing the impact of a progressive tax system on taxpayer choice, economists focus on themarginal tax rate This is the tax rate that would apply to an additional $1 of taxable income earned Suppose an individual was earning taxable income of $8,025 and paid federal income taxes of $802.50, or 10% of taxable income (we are ignoring exemptions that would eliminate taxes for such an individual) If the taxpayer were to receive $100 more of taxable income, however, that $100 would be taxed at a rate of 15%, the rate that applied in 2008 to taxable incomes between Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 811