The Tax Game: What are fair and effective tax rates?

Mark Maier, Glendale Community College,
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Summary

Based on an online simulation teams choose from five tax regimes that each collect the same tax revenue but do so with different tax rates. Teams predict the impact of their tax choices and then, based on the simulation, view the total tax incidence.

Context for Use

  • Designed for a Principles of Economics course in which students have learned the regressive or progressive impact of U.S. tax types.
  • No limit on class size.
  • Initial choices and evaluation of the tax choices takes about 20 minutes.
  • Extension of the activity in which individuals or teams design their own tax systems requires 30 minutes to 1 hour.

Overview

Based on an online simulation teams choose from five tax regimes that each collect the same tax revenue but do so with different tax rates. Teams predict the impact of their tax choices and then, based on the simulation, view the total tax incidence.
Students practice understanding the tax incidence of US tax types: personal income; payroll; sales; corporate income; wealth; property and excise taxes.

Expected Student Learning Outcomes

Students are able to predict the tax incidence based on different tax choices.
Students are able to make value judgments about tax choices based on the tax incidence.

Information Given to Students

Below are five different tax rates for a country similar to the United States. Each tax system collects the same total revenue. But they differ in their tax incidence--that is how the taxes affect different income groups.

Your team must select which overall tax system you prefer. After the selection a simulation program will be used to predict the impact of the tax system on the following income groups:

Lowest 20%; Lower middle 20%; Middle 20%; Upper middle 20%; Top 20% and Top 1%

Tax game options (Microsoft Word 2007 (.docx) 16kB Feb11 18)

Teaching Notes and Tips

The simulation is available here

Tax Game results with options A, B, C, D and E Tax game results (Microsoft Word 2007 (.docx) 13kB Feb11 18)

Assessment

As a follow up:
1) Teams can design their own tax system and enter it into the tax simulation
2) Individuals or teams of two can design their tax system and enter it into the tax simulation. This assessment may be preferred because students can work out of class and take time to make their decisions, adjusting their choices after seeing the tax incidence.

The goal should be for students to be able to justify each of their tax choices. Consider an assignment such as:

Note: The Tax Game prints out final results with student names attached.

References and Resources

Link to Tax Game here