3 MAJOR WAYS IN WHICH

GOVERNMENT
REDISTRIBUTES INCOME
TAXES
GOVERNMENT SUBSIDIES
TRANSFER PAYMENTS
 TAXES
The enforced proportional
contributions from persons and
property imposed by the state
through its law-making body, by
virtue of its sovereignty for the
support of government and all public
needs.
Important tool for redistributing
income.
Tax creates revenue to the
TYPES OF TAXES
PROGRESSIVE TAX
REGRESSIVE TAX
PAYROLL TAX
EXCISE TAX
 PROGRESSIVE TAX

is designed so that those with higher

incomes pay a greater proportion of
their income in taxes.
Example: Personal Income Tax
EXCLUDED from income for taxation
purposes
interest on municipal bonds
income kind (like Food stamps or
Medicare)
Tax Rate

In this way, Progressive tax helps to reduce income

 REGRESSIVE TAX

takes a larger percentage of income

from low-income earners than from
high-income earners.

There is no such kind of tax in the

Philippines.
 PAYROLL TAX

Taxes imposed on employers or

employees, and are usually
calculated as a percentage of the
salaries that employers pay their
staff.
Payroll taxes generally fall into two
categories: deductions from an
employee's wages, and taxes paid by
the employer based on the
employee's
PT is actually a wages.
 SOCIAL SECURITY (Payroll tax)

40

The lesser the qty.

Wage firms 30
of labor, the lower
pay Burden by Firm the
The wage
lesserworkers
the qty.
Wage w/o Payroll receive.
Burden by of labor, the higher
tax Taxes The higherfirms
the qty.
Worker the wage pay
Wage 20 of labor, the greater
The higher the qty.
workers the wagethe
of labor, workers
lesser
receive receive
the wage firms pay

10

Quantity of
1 2 3 4 5
 Supply of Labor
40

Wage firms
pay 30
Wage w/o tax A
Burden by firm
TAX
Burden by worker
WAGE
B
Wage workers
receive20 Demand for Labor

10

Payroll tax is
a regressive L2 L1
tax
 EXCISE TAX

A charged imposed upon the

performance of an act, the
enjoyment of a privilege, or the
engagement of an occupation.
Considered as Sales Tax on
individual products such as
cigarettes, alcohol, gasoline and
gambling

ET increases the price of such items, to reduce the amount they

 EXCISE TAX

The most unfair type of tax because

it is generally the most regressive.
It is considered regressive tax
because lower-income people pay a
larger fraction of their incomes for
such items, so that they pay a larger
fraction of their incomes for taxes on
those items, even though all users
pay the same tax rate on them.
GOVERNMENT SUBSIDIES
A subsidy is a benefit given by the
government to groups or individuals, usually
in the form of a cash payment or a tax
reduction.
The use of governmental revenues to provide
Subsidy is considered as a
low-cost public services. negative tax as it creates cost
Example: to the government

Inexpensive public housing

Subsidized public transport
(MRT & LRT)
Public parks
Free/inexpensive Public
 TRANSFER PAYMENTS
Cash transfer payments are by
the government, particularly to the
poor and aged, for which no goods or
services are exchanged.
Includes: Social Security,
unemployment compensation
benefits, welfare (temporary
assistance for needy families or
TANF) & veteran payments.
 TRANSFER PAYMENTS
Noncash transfers
Examples:
Food stamps
Medicaid
School lunch programs
Housing subsidies (are designed to
raise the living standards of the
poor)
 CONCLUSION
How does the government
use taxes, subsidies and
transfer payments to
redistribute income toward
lower-income groups?
 ANSWER
Taxes, particularly
progressive ones such as
the individual income tax,
are borne more heavily by
higher-income citizens
than lower-income citizens.
 ANSWER
While most subsidy and
transfer payment
programs are primarily
focused on lower-income
citizens.
Thank You
SOCIAL SECURITY (Payroll tax)