Lorenz curve block
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The document discusses graphing a Lorenz curve on pages 416-417 and comparing it to something on page 418. It also mentions a short quiz asking about wealth distribution between countries and why it may or may not matter. Finally, it provides instructions for a small group exercise to draw the Lorenz curve for a fictional country called Travistan and think of ways to reduce inequality in the country.
Lorenz curve block
- 1. In your notes: Page 416-417 • Graph our orenz curve • A problem? • Compare to page 418
- 5. Short Quiz 1. Which country has a more equal distribution of wealth? 2. Why might that matter? 3. Why might that not matter?
- 6. A small group exercise • The small country of Travistan has 10 citizens. The citizens and their earned incomes are listed below: • Citizen Earned Income • Zak $ 2,000 • Erika $10,000 • Bill $ 1,500 • Juan $ 15,000 • Harry $ 16, 000 • Jose $ 9,000 • Emily $ 30,000 • Kai $ 12,000 • Robert $ 8,000 • Kathleen $ 20,000 1. Draw the Lorenz Curve for this country.
- 7. A small group exercise • The small country of Travistan has 10 citizens. The citizens and their earned incomes are listed below: • Citizen Earned Income • Zak $ 2,000 • Erika $10,000 • Bill $ 1,500 • Juan $ 15,000 • Harry $ 16,000 • Jose $ 9,000 • Emily $ 30,000 • Kai $ 12,000 • Robert $ 8,000 • Kathleen $ 20,000 • Think of 5 ways we could reduce the inequality of this country • (improve economic mobility)
- 8. Taxation “In this world nothing can be said to be certain, except death and taxes.” Benjamin Franklin
- 9. In reality… • US Federal Tax Rates: (only 3 % of Americans make over $250,000) • Add 10 -15 % more depending on which state you work in
- 10. World Tax Rates Country Corporate Tax rate Income Tax Sales Tax United Kingdom 21-28% 0-40 % 17.5% Ireland 12.5 % 2041% 21 % Mexico 29% 3-29 % 15 % Sweden 28 % 0-59 % 25 % Slovakia 19 % 19 % 19 % Hong Kong 15 % 0-15 % 0% United Arab Emirates 0% 0% 0%
- 11. Net Income • Gross income: How much you earn • Net income: how much you keep • • • • Net income = gross income - gross income*tax rate For example: Mr. Klein made $37,500 last year. Net income = $37,500 - $37,500(.25) Net income = $37,500 - $9,375 = $28,125
- 12. What are “Good Taxes”? • • • • According to Adam Smith: Simple to understand Avoid negative incentives Avoid loopholes • IRS manual – 70,000 pages – (4 X size of the Bible) • Economist reading from 2010
- 13. Income Tax in USA • • • • IRS – tax collection agency in USA Taxes are deducted throughout year Every citizen must file every year by: If you paid more during the year then you need to: you get a refund • If you paid less during the year then you need to: pay the difference
- 14. Taxes: For Example • For example: Mr. Klein made $37,500 last year. • Net income = $37,500 - $37,500(.25) • Net income = $37,500 - $9,375 = $28,125 • If Mr. Klein paid $10,375 in 2010, what happens after he files? • Why is a BIG refund not such a great idea?
- 15. Progressive Income Tax Tax on a household income % of changes based on income Ability to pay principle “tax the rich more!” The more you make, the higher your tax % For example: Tax $12/hour labor or accountant $55,000/year Why common in USA & EU Incentive? What should happen to the Lorenz curve? Income $0-$15,000 $15,001$20,000 $20,000$30,000 $30,000$50,000 $50,000$100,000 $100,001 + Tax Rate 0% 10% 15% 25% 33% 38%
- 18. Proportional Income Tax • Tax on a household income • % of stays the same • “flat tax” • For example: 5% tax, $25,000/year or $100,000/year • Why rare in USA? • Incentive?
- 19. But wait, the government isn’t done yet! • Other taxes
- 20. Property tax • Tax on something you own • Usually expensive like your house or boat • For example: $100,000 home – 5% property tax rate • 100,000 X .05 = $5,000 property tax • Incentive? 8.01 % ave Pima Co rate
- 21. Regressive Tax • Smaller % taken the higher your income • Sales tax • For example: 5% tax, $25,000/year w/$10,000 consumption pays: 10,000 X .05 = $500, or 2% of total income • $50,000/year w/$15,000 consumption pays: 15,000 X .05 = $750, or 1.5% of total income • Incentive? • Why don’t poor burn down Phoenix capital building?
- 23. Regressive taxes
- 24. Regressive taxes
- 25. Regressive taxes
- 26. Capital Gains Tax • Tax on real estate, stock sales or dividends, or collectables. • Why not only for the rich?
- 27. Gift tax • Tax on gifts or rewards • Games shows, gambling, lottery • Rate depends on gift • 35-60 % • Is this a bad incentive?
- 28. Tucson painter Ted DeGrazia
- 29. Estate tax • Tax on inheritance • Sometimes called “death tax” • In US today, $2,000,000 and up • 55% rate • Is this a bad incentive?
- 30. If you are curious… • US estate taxes over the years • GW Bush worked to repeal in 2001 • Came back in 2011 when law expires • Barack Obama supports estate tax
- 32. Tax Freedom Day! Day when the average person has earned enough to pay taxes