tax

Examples of tax in the following topics:

• Corporate and Payroll Taxes

  • Many countries impose a corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities.
  • The taxes may also be referred to as income tax or capital tax.
  • The effective tax rate is the average corporate tax rate on the company's income and this takes into consideration tax benefits included in a current tax year.
  • Corporations are also subject to a variety of other taxes including: property tax, payroll tax, excise tax, customs tax and value-added tax along with other common taxes, generally in the same manner as other taxpayers.
  • Deductions from an employee's wages are taxes that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG).

• Comparing Marginal and Average Tax Rates

  • An average tax rate is the ratio of the total amount of taxes paid, T, to the total tax base, P, (taxable income or spending), expressed as a percentage.
  • Broadly, the marginal tax rate equals the change in taxes, divided by the change in tax base, expressed as a percentage.
  • A progressive tax is a tax in which the tax rate increases as the taxable base amount increases .
  • A regressive tax is a tax imposed in such a manner that the average tax rate decreases as the amount subject to taxation increases .
  • A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases.

• Taxes

  • Examples of an indirect tax include sales tax and VAT (value added tax).
  • Progressive Tax: The more a person earns, the higher the tax rate.
  • Regressive Tax:In a regressive tax system, poorer families pay a higher tax rate.
  • Although a regressive tax system is never explicitly used, some claim a sales tax is a type of regressive tax.
  • Categorize types of taxes into ad valorem taxes and excise taxes

• Financing State and Local Government

  • Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.
  • State taxes are generally treated as a deductible expense for federal tax computation.
  • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
  • Property tax is generally imposed only on real estate, though some jurisdictions tax some forms of business property.
  • Property tax rules and rates vary widely.

• Tax Incidence and Elasticity

  • Tax incidence refers to who ultimately pays the tax, the producer or consumer, and the resulting societal effect..
  • Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately has to pay, the tax.
  • The imposition of the tax causes the market price to increase from P without tax to P with tax and the quantity demanded to fall from Q without tax to Q with tax.
  • The producer is unable to pass the tax onto the consumer and the tax incidence falls on the producer.
  • In this example, the tax is collected from the producer and the producer bears the tax burden.

• Trading off Equity and Efficiency

  • Income taxes are a laddered progressive tax where income tax rates are set in income bands or ranges.
  • The purpose of a progressive tax system is to increase the tax burden to those most able to pay.
  • These individuals and groups support a flat tax or proportional tax instead.
  • Income tax is a progressive tax that assumes a regressive nature at the highest tax rate.
  • Explain tax equity in relation to the progressive, proportional, and regressive nature of taxes.

• What Taxes Do

  • Taxes are the primary source of revenue for most governments.
  • Taxes are most readily understood from the perspective of income taxes or sales tax, although there are many other types of taxes levied on both individuals and firms.
  • Congress enacts these tax laws, and the IRS enforces them.
  • Governments use different kinds of taxes and vary the tax rates.
  • As a result, individuals earning a relatively lower income will pay a higher proportion of income in the form of sales tax, defining the regressive nature of the tax.

• Financing the US Government

  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • The following is a list of taxes in common use by governmental authorities:
  • Excise tax: tax levied on production for sale, or sale, of a certain good.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • Capital gains tax: tax on increases in the value of owned assets.

• Tax Incidence, Efficiency, and Fairness

  • Tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.
  • In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.
  • Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately has to pay, the tax.
  • In this example, consumers bear the entire burden of the tax; the tax incidence falls on consumers.
  • The imposition of a tax can result in a reduction to both consumer and producer surplus relative to the pre-tax scenario.

• Tax

  • Taxes are a market-based policy option available to the government to address externalities.
  • A corrective tax (also called a Pigovian tax) is applied to a market activity that is generating negative externalities (costs for a third party).
  • As the figure demonstrates, a tax shifts the marginal private cost curve up.
  • The level of the corrective tax is intended to counterbalance the externality.
  • A tax shifts the marginal private cost curve up by the amount of the tax.