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Article #1: Types of taxes

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The Organisation for Economic A small number of US states rely entirely
Co-operation and Development (OECD) on sales taxes for state revenue, as
publishes perhaps the most comprehensive those states do not levy a state income
analysis of worldwide tax systems. In tax. Such states tend to have a moderate
order to do this it has created a to large amount of tourism or inter-state
comprehensive categorisation of all taxes travel that occurs within their borders,
in all regimes which it covers: Income allowing the state to benefit from taxes
Tax from people the state would otherwise not
Income tax is a tax on earnings – money tax. In this way, the state is able to
that individuals, corporations, trusts or reduce the tax burden on its citizens.
other legal entities receive in different The US states that do not levy a state
ways and from different sources. income tax are Alaska, Florida, Nevada,
The 'tax net' refers to what types of South Dakota, Texas, Washington state,
money payments are charged the tax. and Wyoming. Additionally, New Hampshire
Generally, tax will be charged on and Tennessee only levy state income
personal earnings (wages), capital gains, taxes on dividends and interest income.
and business income. The rates for Of the above states, only Alaska and New
different types of income may vary and Hampshire do not levy a state sales tax.
some may not be taxed at all. Capital Additional information can be obtained at
gains may be taxed when realised (e.g. the Federation of Tax Administrators
when shares are sold) or when incurred website.
(e.g. when shares appreciate in value). In the United States, there is a growing
Business income may only be taxed if it movement for the replacement of all
is ‘significant’ or based on the federal payroll and income taxes (both
manner in which it is paid. Some types of corporate and personal) with a national
income, such as interest on bank savings, retail sales tax and monthly tax rebate
may be considered as personal earnings to households of citizens and legal
(similar to wages) or as a realised resident aliens. The tax proposal is
property gain (similar to selling named FairTax. In Canada the federal
shares). In some tax systems ‘personal sales tax is called the Goods and
earnings’ may be strictly defined to Services tax (GST) and now stands at 6%.
require that labour, skill, or investment All provinces except Alberta also have a
was required (e.g. wages); in others they provincial sales tax.Most businesses can
may be defined broadly to include claim back the taxes they pay and so
windfalls (e.g. gambling wins). effectively it is the final consumer who
Tax rates may be progressive or flat. A pays the tax.
progressive tax taxes differentially Tariffs
based on how much has been earned. For An import or export tariff (also called
example, the first $10,000 in earnings customs duty or impost) is a charge for
may be taxed at 5%, the next $10,000 at the movement of goods through a political
10%, and any more income at 20%. border. Tariffs discourage trade, and
Alternatively, a flat tax taxes all they may be used by governments to
earnings at the same rate. A tax system protect domestic industries. A proportion
may use both progressive and flat taxes of tariff revenues is often hypothecated
for different types of income. to pay government to maintain a navy or
Often income tax systems will have border police. The classic ways of
deductions available. Deductions lessen cheating a tariff are smuggling or
the total tax liability by reducing total declaring a false value of goods.
taxable income. Income tax systems may Toll Tax
allow losses from one type of income to A Toll Tax is a tax has been often used
be counted against another. For example, historically on roads and bridges to pay
a loss on the stock market may be for state bridge and road projects.
deducted against taxable wages. Other tax Use taxes
systems may isolate the loss, such that Gas taxes are a form of Use Tax that is
business losses can only be deducted collected for a particular need and to
against business tax, by carrying forward maintain roads.
the loss to later tax years. Value added tax
Income tax is often collected on a A value added tax (VAT), also known as
pay-as-you-earn basis, with small 'Goods and Services Tax' (G.S.T), or
corrections made soon after the end of 'Impuesto Indirecto sobre la Prestacion
the tax year. These corrections take one de Servicios' (I.S.I.), Sales Tax,
of two forms: payments to the government, Business Tax, or Turnover Tax in some
for taxpayers who have not paid enough countries, applies the equivalent of a
during the tax year; and tax refunds from sales tax to every operation that creates
the government for those who have value. To give an example, sheet steel is
overpaid. imported by a machine manufacturer. That
Retirement tax manufacturer will pay the VAT on the
Some countries with social security purchase price, remitting that amount to
systems, which provide income to retired the government. The manufacturer will
workers, fund those systems with specific then transform the steel into a machine,
dedicated taxes. These often differ from selling the machine for a higher price to
comprehensive income taxes in that they a wholesale distributor. The manufacturer
are levied only on specific sources of will collect the VAT on the higher price,
income, generally wages and salary (in but will remit to the government only the
which case they are called payroll excess related to the "value added" (the
taxes). A further difference is that the price over the cost of the sheet steel).
total amount of the taxes paid by or on The wholesale distributor will then
behalf of a worker is typically continue the process, charging the retail
considered in the calculation of the distributor the VAT on the entire price
retirement benefits to which that worker to the retailer, but remitting only the
is entitled. Examples of retirement taxes amount related to the distribution markup
include the FICA tax, a payroll tax that to the government. The last VAT amount is
is collected from employers and employees paid by the eventual retail customer who
in the United States to fund the cannot recover any of the previously paid
country's Social Security system; and the VAT. Economic theorists have argued that
National Insurance Contributions (NICs) this minimises the market distortion
collected from employers and employees in resulting from the tax, compared to a
the United Kingdom to fund the country's sales tax. However, VAT is held by some
national insurance system. to discourage production.
These taxes are sometimes regressive in VAT was historically used when a sales
their immediate effect. For example, in tax or excise tax was uncollectible. For
the United States, each worker, whatever example, a 30% sales tax is so often
his or her income, pays at the same rate cheated that most of the retail economy
up to a specified cap, but income over will go off the books. By collecting the
the cap is not taxed. A further tax at each production level, and
regressive feature is that such taxes requiring the previous production level
often exclude investment earnings and to collect the next level tax in order to
other forms of income that are more recover the VAT previously paid by that
likely to be received by the wealthy. The production level, the theory is that the
regressive effect is somewhat offset, entire economy helps in the enforcement.
however, by the eventual benefit In reality, forged invoices and the like
payments, which typically replace a demonstrate that tax evaders will always
higher percentage of a lower-paid attempt to cheat the system.
worker's pre-retirement income. Input versus Output Tax
Capital gains tax When a company that is registered for
A capital gains tax is the tax levied on VAT, buys goods or services from another
the profit realised upon the sale of a supplier, VAT is charged based on the
capital asset. In many cases, the amount purchase cost. This is known as input
of a capital gain is treated as income tax.
and subject to the marginal rate of Similarly, when the company sells its own
income tax. In some jurisdictions, such goods or services it charges its
as the United States, a favorable capital customers VAT at the same rate. This is
gains rate is given based on the length output tax.
of holding. European jurisdictions have a At regular intervals, the company may
similar rate reduction to nil on certain have to complete a VAT return, giving
property transactions that qualify for details of its input tax and output tax.
the participation exemption.In Canada, The difference between output tax and
50% of the gain is taxable income. input tax is payable to the Local Tax
If such a tax is levied on inherited Authority. If input tax is greater than
property then it can act as a de facto output tax the company can claim back
probate or inheritance tax. money from Local Tax Authority.
Corporation tax Property taxes
Corporation tax is a tax on corporate A property tax is usually levied on the
earnings (and often includes capital value of property owned, usually real
gains) of a company. Earnings are estate. Property taxes may be charged on
generally considered gross revenue less a recurrent basis, or upon a certain
expenses. However, corporate expenses event.
that relate to capital expenditures are A common type of property tax is an
rarely deducted in full (such as the annual charge on the ownership of real
entire cost of a company truck) and are estate, where the tax base is the
often deducted over the useful life of supposed value of the property. For a
the asset purchase. Generally, period of over 150 years from 1695 a
industrialized countries also use a window tax was levied in England, with
regressive rate of tax upon corporate the result that you can still see listed
income. buildings with windows bricked up in
Poll tax order to save their owner's money. A
A poll tax, also called a per capita tax, similar tax existed in France, with
or capitation tax, is a tax that levies a similar results.
set amount per individual. One of the The two most common type of event driven
earliest taxes mentioned in the Bible of property taxes are stamp duty, charged
a half-shekel per annum from each adult upon change of ownership, and inheritance
Jew (Ex. 30:11-16) was a form of poll tax, which is imposed in many countries
tax. Poll taxes are administratively on the estates of the deceased.
cheap because they are easy to compute In contrast with a tax on buildings, a
and collect and difficult to cheat. land value tax is levied only on the
However, they are very unpopular because unimproved value of the land ("land" in
they are strongly regressive (poorer this instance meaning the economic term,
people pay a higher proportion of their i.e., all natural resources). Land tax
income than richer people). The has long been recognised as the only tax
introduction of a poll tax in medieval which does not distort market relations.
England was the primary cause of the 1381 Some political economists claim that
Peasants' Revolt, and in England and because land is not the product of labour
Wales in 1990 the change from a it should be the only tax. See Georgism.
progressive local taxation based on When real estate is held by a higher
property values to a single-rate form of government unit or some other entity not
taxation regardless of ability to pay subject to taxation by the local
(the Community Charge, but more popularly government, the taxing authority may
referred to as the Poll Tax) was receive a payment in lieu of taxes to
instrumental in the demise of the then compensate it for some or all of the
Prime Minister Margaret Thatcher. foregone tax revenue.
Excises Transfer taxes
Unlike an ad valorem tax, an excise is Historically, in many countries, a
not a function of the value of the contract needed to have a stamp affixed
product being taxed. Excise taxes are to make it valid. The charge for the
based on the quantity, not the value, of stamp was either a fixed amount or a
product purchased. For example, in the percentage of the value of the
United States, the Federal government transaction. In most countries the stamp
imposes an excise tax of 18.4 cents per has been abolished but stamp duty
US gallon (4.86 c/L) of gasoline, while remains. Stamp duty is levied in the UK
state governments levy an additional 8 to on the purchase of shares and securities,
28 cents per US gallon. the issue of bearer instruments, and
Purposes and effects of excises certain partnership transactions. Its
Excises on particular commodities are modern derivatives, stamp duty reserve
frequently Hypothecated. For example, a tax and stamp duty land tax, are
fuel excise is often used to pay for respectively charged on transactions
public transportation, especially roads involving securities and land. Stamp duty
and bridges and for the protection of the has the effect of discouraging
environment. A special form of speculative purchases of assets by
hypothecation arises where an excise is decreasing liquidity. In the US transfer
used to compensate a party to a tax is often charged by the state or
transaction for alleged uncontrollable local government and (in the case of real
abuse: for example, a blank media tax is property transfers) can be tied to the
a tax on recordable media such as CD-Rs, recording of the deed or other transfer
whose proceeds are typically allocated to documents. Taxes on currency transactions
copyright holders. Critics charge that are known as Tobin taxes.
such taxes tax blindly those who make Inheritance tax
legitimate and illegitimate usages of the Some believe that inheritance taxes do
products; for instance, a person or not have any harmful effect on the
corporation using CD-R's for data economy and may even be beneficial as
archival should not have to subsidize the they encourage consumer spending by the
producers of popular music. elderly. However, some also believe them
Excises (or exemptions from them) are to discourage productivity and to disrupt
also used to modify consumption patterns. the continuity of family-owned
For example, a high alcohol excise is businesses.
used to discourage alcohol consumption, Wealth (net worth) tax
relative to other goods. This may be Some countries' governments will require
combined with hypothecation if the declaration of the tax payers' balance
proceeds are then used to pay for the sheet (assets and liabilities), and from
costs of treating illness caused by that exact a tax on net worth (assets
alcohol abuse. Similar taxes may exist on minus liabilities), as a percentage of
tobacco, pornography, etc..., and they the net worth, or a percentage of the net
may be collectively referred to as sin worth exceeding a certain level. The tax
taxes. A carbon tax is a tax on the is in place for both "natural" and in
consumption of carbon-based non-renewable some cases legal "persons".
fuels, such as petrol, diesel-fuel, jet Personal property tax
fuels and natural gas. The object is to In many jurisdictions (including many
reduce the release of carbon into the American states), there is a general tax
atmosphere. In the UK, vehicle excise levied periodically on residents who own
duty is an annual tax on vehicle personal property within the
ownership. jurisdiction. Vehicle and boat
Sales tax registration fees are subsets of this
Sales taxes are a form of excise levied kind of tax.
when a commodity is sold to its final Usually, the tax is designed with blanket
consumer. Retail organizations contend coverage but with large exceptions for
that such taxes discourage retail sales. obvious things like food and clothing.
The question of whether they are Household goods are exempt as long as
generally progressive or regressive is a they are kept or used within the
subject of much current debate. People household. However, any otherwise
with higher incomes spend a lower non-exempt object can lose its exemption
proportion of them, so a flat-rate sales if regularly kept outside the household.
tax will tend to be regressive. It is Thus, tax collectors often monitor
therefore common to exempt food, newspaper articles for stories about
utilities and other necessities from wealthy people who have lent art to
sales taxes, since poor people spend a museums for public display, because the
higher proportion of their incomes on artworks have then become subject to
these commodities, so such exemptions personal property tax. And if an artwork
would make the tax more progressive. This had to be sent to another state for some
is the classic "You pay for what you touch-ups, it may have become subject to
spend" tax, as only those who spend money personal property tax in that state as
on non-exempt (i.e. luxury) items pay the well.
tax.






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