Taxation is the payment of tax or value equal to the difference between what the government wants and what a taxpayer’s assets are worth at the time of payment. There are many different types of taxation. Most governments levy property taxes and income taxes. A property tax is a tax that is assessed against a home or other real estate, paid to the government on behalf of the owner. The amount of the property tax usually depends on property valuation and market conditions. Income tax is the general tax form in which individuals or corporations pay an income tax for the year in which they receive money or income.
Taxation is also based on ability to pay rather than ability to earn. There are two forms of taxation: regressive and proportional. A regressive tax system gives a higher rate of tax to those who have higher incomes and pays little in income tax. Proportional tax systems are usually regressive, but the tax is proportional to a person’s income. A person with a large income may pay a lower amount in regressive taxes than someone with a small or modest income.
In a proportional tax system, there is a table showing how your taxable income changes as you move from one tax bracket to the next. The top of the table would be the highest tax bracket, you would qualify for, followed by the next highest bracket, and so on. When you do this, it would calculate your net taxable income for that year and look at how much more you would pay if you were in that bracket rather than the lowest one. You can then choose the most efficient tax bracket.
Estate taxes are progressive taxes that are levied on the profits of a dying person’s estate. Some people call them “estates,” while others prefer to call them gifts. They are levied according to the current value of the estate. Most estate taxes are exempt, while some are imposed on the basis of wealth, inheritance, charities, and special funds.
Both progressive and marginal tax rates are used in the US federal system. The progressive tax systems are mostly progressive, while the marginal tax rates are mostly regressive. Progressive taxes hike up income taxes as incomes increase, whereas the regressive taxes are adjusted according to the cost of living and increase only marginal tax rates. In other words, the progressive tax system tends to tax higher incomes more heavily than the regressive system. On the other hand, both types of tax systems are used in other countries around the world as well.
Sales taxes and sin taxes are regressive as well, although not as much as sales taxes. Sales taxes are based on the purchase price of the item and include many items such as groceries, gas, and other major consumable items. Sin taxes are based on the amount of money that is transferred to the tax collector from the seller at the time of purchase. Sales taxes are typically based on an item’s selling price, with exemptions for personal use and some gasoline.