Types of Taxes

12 Key excerpts on "Types of Taxes"

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  eBook - ePub

  Microeconomics in Context

  • Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Pratistha Joshi Rajkarnikar, Brian Roach, Mariano Torras(Authors)
  • 2018(Publication Date)
  • Routledge

    (Publisher)

  Fortunately, one need not comprehend the imposing complexity of tax laws to understand the crucial role of taxes in modern societies. Taxation is an important topic for students of economics. Tax policies have important economic consequences, both for a national economy and for particular groups within the economy. Tax policies are often designed with the intention of stimulating economic growth—although economists differ significantly about which tax policies are most effective at achieving this. Taxes can create incentives promoting desirable behavior and disincentives for unwanted behavior. Taxation provides a means to redistribute economic resources toward those with low income or special needs. Taxes provide the revenue needed for important public services such as social security, health care, national defense, and education.

  Taxation is as much a political issue as an economic issue. Political leaders have used tax policy to promote their agendas by initiating various tax reforms: decreasing or increasing tax rates, changing the definition of taxable income, creating new taxes on specific products, and so forth. Of course, no one particularly wants to pay taxes. Specific groups, such as corporations, farmers, or retired individuals, exert significant political effort to reduce their share of the tax burden. Tax codes are packed with rules that benefit certain groups of taxpayers while inevitably shifting more of the burden to others.

  In this chapter, we take a look at taxes and tax policy. First, we consider taxes from a theoretical perspective based on the economic models from earlier chapters. Second, we summarize the different Types of Taxes, with an emphasis on the United States. Third, we present an international comparison of tax policies. Finally, we address current tax debates, including the distribution of the tax burden among different groups.

  1 . Economic Theory and Taxes

  1.1 Taxes in the Supply-and-Demand Model

  The supply-and-demand model we presented in Chapter 3 can be used to gain insights into the effects of taxation on consumers and producers. To incorporate taxes into our model, we consider a per-unit tax on a product or service, referred to as an excise tax

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  eBook - PDF

  Construction Management

  • Daniel W. Halpin, Bolivar A. Senior, Gunnar Lucko(Authors)
  • 2017(Publication Date)
  • Wiley

    (Publisher)

  In modern societies, taxes have also been implemented to influence taxpayer behavior. For example, high taxes operate to increase the price of tobacco with the intent that fewer individuals will use tobacco products. Tax deductions are also granted to reward individuals and companies for undertaking actions that are viewed as being positive for the economy or society in general. Charitable gifts are usually either partially or fully deductible from taxable income. Some deduc- tions, for instance, may be given to individuals for the cost of insulating a residence with the intent of motivating individuals to make their homes more energy efficient. 6.4 Types of Taxes A tax levied on the net income realized by a company or individual is called an income tax. Income taxes are referred to as direct taxes. Indirect taxes, in contrast, are levied on the cost, price, or value of products or services (e.g., sales tax assessed at the time of purchase). The U.S. government relied almost exclusively on taxing resources other than income until the 16th Amendment to the Constitution was passed in 1913 (previous attempts to impose income taxes were short-lived). Although the focus of this chapter is on income taxes, everyone also pays indirect taxes. Some forms of indirect taxes will be discussed. 6.5 Income Tax Systems Business entities pay tax on taxable income, which is the revenue earned by the company minus the expense of doing business and any allowable deductions. In the case of individuals, taxable income is defined as gross income minus deductions. As was noted in Chapter 5, the corporate form of legal organization leads to double taxation because the corporation is taxed as a business entity and the stockholders are taxed separately as individuals for profits distributed to them as dividends. Stockholders are also subject to further taxation at the time of sale of stock if the stock has gained in value during the time between purchase and sale.

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  Taxation: Policy and Practice (2023/24) 30th edition

  • Andy Lymer, Lynne Oats(Authors)
  • 2023(Publication Date)
  • Fiscal Publications

    (Publisher)

  3 Principles of tax system design 32 What to tax? 3.3 We saw in the historical review of taxation in Chapter 1 that taxes have been imposed on all kinds of activities, goods and services throughout history. The classification of taxes, however, comes down to three broad groups: Income Taxes taxes on a taxpayer’s income earned or received between specific points in time; Wealth/Capital Taxes taxes on a taxpayer’s accumulated wealth, its transfer or on its changing value; Consumption Taxes taxes on a taxpayer’s spending. The rules used to decide what is taxed, and what is not, under each of these categories is called the tax base. For example, what categories of income a taxpayer is taxed on will form the income tax base, and so on. For each of these bases, decisions must be made about what, if any, individual elements of the base should be taxed, exempted from tax, or relieved from tax in some other way. In the case of income tax, the Government may choose to make income from particular activities, or for particular types of potential taxpayers, exempt from tax, thereby removing it from the tax base. For example, if an economic objective the Government set itself was to encourage people to save more, interest income could be exempted from tax, or be relieved in part, so a lower tax rate was paid on it than might otherwise be the case. As taxpayers who earn interest would then keep more of it for themselves they are likely to be incentivised to save more than they may have before the tax rule change. The Government may also allow reductions in tax liability for particular types of expenditure. In some countries, (but not the UK anymore) taxpayers are allowed to deduct mortgage interest in calculating their income tax base, to encourage home ownership over other forms of accommodation, such as renting. Wealth taxes can be difficult for governments to manage, in part because finding a correct value for assets can sometimes be hard.

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  Taxation: Policy and Practice (2021/22) 28th edition

  • Andy Lymer, Lynne Oats(Authors)
  • 2021(Publication Date)
  • Fiscal Publications

    (Publisher)

  3 Principles of tax system design 38 What to tax? 3.3 We saw in the historical review of taxation in Chapter 1 that taxes have been imposed on all kinds of activities, goods and services throughout history. The classification of taxes, however, comes down to three broad groups: Income Taxes taxes on a taxpayer’s income earned or received between specific points in time; Wealth/Capital Taxes taxes on a taxpayer’s accumulated wealth, its transfer or on its changing value; Consumption Taxes taxes on a taxpayer’s spending. The rules used to decide what is taxed, and what is not, under each of these categories is called the tax base. For example, what categories of income a taxpayer is taxed on will form the income tax base, and so on. For each of these bases, decisions must be made about what, if any, individual elements of the base should be taxed, exempted from tax, or relieved from tax in some other way. In the case of income tax, the Government may choose to make income from particular activities, or for particular types of potential taxpayers, exempt from tax, thereby removing it from the tax base. For example, if an economic objective the Government set itself was to encourage people to save more, interest income could be exempted from tax, or be relieved in part, so a lower tax rate was paid on it than might otherwise be the case. As taxpayers who earn interest would then keep more of it for themselves they are likely to be incentivised to save more than they may have before the tax rule change. The Government may also allow reductions in tax liability for particular types of expenditure. In some countries, (but not the UK anymore) taxpayers are allowed to deduct mortgage interest in calculating their income tax base, to encourage home ownership over other forms of accommodation, such as renting. Wealth taxes can be difficult for governments to manage, in part because finding a correct value for assets can sometimes be hard.

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  eBook - PDF

  Principles of Economics in Context

  • Neva Goodwin, Jonathan M. Harris, Julie A. Nelson, Brian Roach, Mariano Torras, Jonathan Harris, Julie Nelson(Authors)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  For example, the United States tends to rely on individual income taxes more than most countries do. Income taxes comprised about 40 percent of all tax revenue in the United States in 2015, compared to an OECD average of 25 percent. 22 Several other Types of Taxes are relied on more in other countries than in the United States. For more on these other Types of Taxes, see Box 12.2. 3.3 C URRENT T AX P OLICY I SSUES Taxation and Economic Growth Although this section of the book is concerned primarily with microeconomics, any discussion of tax policy should consider the debate over the relationship between taxation and macroeconomic growth. In addition to raising revenues, taxes generally create a disincentive to engage in certain activities. For example, high taxes on investment are expected to reduce overall investment. One theory is that a high overall rate of taxation creates a disincentive for people to work hard and invest, because they will keep less of their money after taxes. This theory implies that rates of mac-roeconomic growth will be higher when tax rates are low. Many proponents of this theory focus in particular on the marginal tax rates of high-income earners. According to supply-side economics , low marginal tax rates encourage entrepreneurs and investors to increase their economic efforts, leading to more employment and, ultimately, benefits that “trickle down” to workers and the broader economy. Does the evidence support the view that taxes represent a drag on economic growth? We can ana-lyze the relationship between economic growth and taxes by comparing data across countries and by looking at data over time within a single country.

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  Available until 25 Jan |Learn more

  Business Economics

  • Rob Dransfield(Author)
  • 2013(Publication Date)
  • Taylor & Francis

    (Publisher)

  To raise revenue. The earliest taxes were raised by governments to pay for the expenses of the rulers of a country and to finance wars. Today, taxes are levied to raise money to cover a range of government expenditures – for example, on building schools, hospitals and roads, paying for defence and a police force.
• To discourage certain activities – for example, those that some see as anti-social in terms of the damage to health and pollution that they cause, such as smoking or driving. So cigarettes, cars and fuel may be heavily taxed.
• To discourage the import of goods. Import taxes are referred to as tariffs. They can be levied as a percentage of the value of imports (an ad valorem tax) or a set tax on each item imported (a specific tax).
• To redistribute income from the rich to the poor.
Economists make a distinction between:
• Direct taxes, for which the burden falls on the person paying it – for example, when you pay income tax it is taken directly from your wages and paid to the government.
• Indirect taxes, which are imposed by governments on goods and services, but are eventually paid by consumers rather than by businesses that collect the tax for the government in the first instance.
The payer of a direct tax has no choice about whether they pay the tax. In contrast, consumers can decide whether or not to buy a good with a tax on it. Because of this element of choice some people believe that the government should rely more on indirect than direct taxes. For example, Conservative governments in Britain have always favoured indirect taxes such as VAT rather than direct taxes such as income tax (which it sees as a disincentive to work).
Progressive, regressive and proportional taxes If income is going to be redistributed then the rich need to pay more in tax than the poor.
A progressive tax takes a greater proportion of income from a wealthy person than from a poor person. So someone earning £20,000 a year might pay 15 per cent tax on this income (£3,000), someone earning £50,000 a year might pay 20 per cent tax on this income (£10,000) and a person earning £100,000 a year 25 per cent tax on this income (£25,000). In each case the richer the person the more disposable income that they have after tax (see Table 14.4