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The Sales Tax. More than half the taxes collected by the states come from the sales tax. This is a highly regressive tax. Although most food items are exempt, the poor consume a higher proportion of their incomes than the rich, who are able to save. In other words, a higher proportion of poor people's income is subject to this tax.
Furthermore, the rich can avoid or evade a large proportion of the sales tax by buying their big-ticket items - stereos, TVs, cars, and so on - in states that have low or no sales tax. They can also evade the sales tax by buying expensive items for cash (an option not feasible for the poor) from merchants who don't declare their cash incomes.
The Property Tax. More than 80 percent of all local tax revenue is derived from the property tax. There is some disagreement about whether this is a regressive tax, but it is a deduction that you may take on your federal income tax. For example, if you paid $ 3,000 in property tax, you are entitled to a $ 3,000 deduction on your federal income tax return.
23.6. Answer the following questions:
1. Why is the sales tax highly regressive?
2. Why is the property tax considered to be the main source of local revenue?
TAPESCRIPTS
Tapescript 1
A. What is your purpose in applying for a loan?
B. I plan to open a small Ukrainian food store.
A. Do you think it will be a profitable business?
B. I’m sure it will be. A lot of Ukrainians live in the neighborhood. I am of Ukrainian origin myself. I talked to some people. Lots of them will be regular customers.
A. How much money do you need, and how soon will you be able to pay it back?
B. $25,000 and I hope to pay it back in one year.
A. Are you sure it will be enough?
B. Yes, here’s my estimate. It will be quite enough, and I will be able to pay the money back in one year.
A. But I hope you do not forget that you’ll have to pay it back with interest.
B. Yes, I know.
A. And what will be your security?
B. You mean, how I will guarantee paying the borrowed money back?
A. Yes.
B. My property will be my security: I own a house.
A. Well, thank you. We’ll study your documents and invite you back again in about a week.
Tapescript 2
Financial capital is the “liquid assets” of a company, such as cash, bonds, shares, etc. There may be other types of capital, including especially the company’s physical assets (land, buildings, machinery, and equipment).
Financial capital is usually subdivided into stock capital (that received from the company’s stocks) and debenture capital. Debenture capital is the money the company has gained from loans – i.e., borrowed by the company.
Stock capital can be classified according to the type of shares – preference shares, ordinary shares, or deferred shares.
Preference stocks have a fixed rate of dividends, meaning that people who hold these always receive an amount of money equal to their dividends. The advantage is that they receive this money before dividends are paid to the holders of ordinary or deferred shares, and even in bad years. The disadvantages are that holders of preference shares do not have the right to vote at shareholders meetings and cannot influence decisions.
Holders of ordinary shares have voting rights and the right to elect the company’s senior management. They also have the right to increased dividends when the company enjoys greater profits. The disadvantage is that their dividends go down when profits are smaller, and in bad years they may receive no dividends at all.
Deferred shares are shares with deferred (later) payment of dividends. For instance, they may be paid after a company has reached a certain level of development, or at the time of determining its annual profits.
But unlike shareholders, debenture holders are not members of the company. They do not share the member’s risks; they receive a regular income from their investment and take precedence over the shareholders if the company is liquidated - that means, debenture holders are paid before shareholders. This makes debentures a relatively safe form of investment.
GLOSSARY
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