Public Finance & Taxation

A tax bracket is a range of income taxed at a particular rate within a progressive income-tax system.

The marginal tax rate is the tax rate applied to the next dollar of income earned.

The average tax rate is total taxes paid divided by total income.

A sales tax is a tax on goods and services collected at the point of sale as a percentage of the price.

A VAT is a tax collected at each stage of production on the value added, ultimately paid by the final consumer.

A tax credit directly reduces the amount of tax owed, dollar for dollar.

The Laffer curve shows that tax revenue rises with the tax rate up to a point, then falls as high rates discourage work and investment.

A transfer payment is money the government gives to individuals without receiving a good or service in return.

An entitlement program is a government benefit that everyone who meets set eligibility rules is legally guaranteed to receive.

A tax wedge is the gap a per-unit tax drives between the price buyers pay and the price sellers receive, equal to the tax per unit at the new quantity.

The excess burden of a tax is the deadweight loss it creates beyond the revenue collected, arising because the tax distorts consumption and production decisions.

The benefit principle taxes people according to the public services they use; the ability-to-pay principle taxes them according to their capacity to bear the burden.

A payroll tax is a tax on wages and salaries, usually split between employer and employee, that funds social insurance programs.

A capital gains tax is a tax on the profit from selling an asset for more than you paid, owed only when the gain is realized through a sale.

An estate tax is a tax on the value of a deceased person's assets before they pass to heirs, charged only on the amount above an exemption threshold.

A corporate income tax is a tax on a company's profits, that is, on revenue minus deductible costs, rather than on its sales or its assets.

The tax base is the total amount of economic activity a tax applies to, such as all taxable income or all taxable sales, before the rate is applied.

A tax expenditure is revenue a government gives up through a deduction, credit or exclusion, which works like spending delivered through the tax code.

The benefits-received principle says people should pay taxes in proportion to the benefits they get from public services, like a gasoline tax funding roads.

A means-tested program is a government benefit available only to households whose income or assets fall below a set eligibility limit.

The Earned Income Tax Credit is a refundable tax credit for low- and moderate-income workers that rises with earnings, then plateaus, then phases out.

A negative income tax is a scheme in which households below a break-even income receive a payment from the tax system instead of paying tax.

Universal basic income is a regular cash payment to every individual regardless of income or employment, with no work requirement and no means test.

Fiscal federalism is the division of taxing and spending powers among national, state and local governments, and the transfers that flow between them.

A balanced budget amendment is a constitutional rule requiring the government to keep annual spending within annual revenue, so it cannot run a deficit.

Sovereign debt is money borrowed by a national government, usually by issuing bonds, and it is the accumulated stock of past deficits.

A debt ceiling is a legal cap on how much a government may borrow in total, which must be raised before new borrowing can fund spending already approved.

The debt-to-GDP ratio is a government's outstanding debt divided by one year of nominal GDP, expressed as a percentage.

The primary balance is government revenue minus government spending other than interest payments on existing debt.

Horizontal equity is the tax principle that people in the same economic circumstances should pay the same amount of tax.

Vertical equity is the tax principle that people with greater ability to pay should bear a larger tax burden, usually through a rising average tax rate.