There are many types of taxes. The amount, number of types, and types of taxes vary from one area or jurisdiction to the next. Generally a tax is some sort of direct levy or administrative charge imposed upon a citizen by a government agency in order to finance specific public expenses and government spending. A person may be liable for the tax even if they do not directly benefit from such taxes. Evasion of or disobedience to tax, and/or paying tax, is subject to law.
There are three basic types of taxes: income taxes (commonly called “federal” or “state”), sales taxes, and property taxes. Some jurisdictions also have what are termed “proportional taxes,” which are progressive taxes. In a progressive tax, the rate of taxation becomes progressively greater as income increases, and the revenues increase. In an income tax, revenues grow according to the growth of an individual’s income. Sales tax and property tax are regressive in nature.
In most U.S. states, local governments levy taxes within their jurisdictions, imposing taxes on real property used to generate local revenues. These taxes generally are incorporated into the overall local revenue system and impose a greater tax burden on citizens within each jurisdiction than do income or sales taxes. Most jurisdictions also permit local governments to implement tax collection programs that are designed to collect a portion of local tax revenues for use in the community. Many jurisdictions also allow for “joint” taxation. This means that both states and local governments levy taxes on businesses or homeowners within the jurisdiction, in order to finance important public programs.
Many citizens in industrialized nations are unfamiliar with the concept of income tax. In the U.S., many taxpayers are unfamiliar with income tax because most income tax returns are filed with the individual tax authority. Most wage and salary (W-2) income are reported on an individual tax return. Income from business activities, such as selling of stocks and mutual funds, is reported on a business income tax return.
Income and consumption taxation is progressive. Consumption taxation provides a lower percentage deduction for high-income individuals and families, while a higher percentage deduction is available for low and middle-income households. Consumption taxation is based on the principle that the more a person spends, more he or she earns. The concept of consumption taxation is used to reduce the social welfare budget by taxing product users at a higher percentage than earners with lower incomes. This type of taxation is highly regressive.
Income taxes are based on the principle that all taxpayers should pay their share of the tax burden. Many countries, including the United States, have a progressive tax system, in which high-income earners have fewer deductions than low-income earners, but all earners are required to pay their share. Income taxes are traditionally higher for higher incomes, but the U.S. has set tax rates that are among the highest in the industrialized world. The U.S. has a progressive tax system, in which deductions are available for low and high-income earners. This combination of progressive and regressive taxes leads to a strong influence on the amount of money that the government takes out of the economy each year.