A Brief Overview of Taxes

What are Taxes?

Taxes are payments that are required by individuals that exist in tandem with financial, commercial, and consumer activity. Within a tax-based society, Taxes may be incurred for a variety of reasons and through a variety of means; Taxes can range in their collection process, procedure of payment, and respective rate(s). While certain Taxes may be required by the entire populace, other Taxes may be required by a finite group of individuals. 

How are Taxes Calculated?

Taxes may be calculated in a number of ways; the methodology undertaken in a specific society will typically dictate the taxation process foisted upon its respective citizens:

Rate-based Taxes

Rate-based Taxes are incurred in accordance with the amount of respective income earned by individual taxpayers:

A progressive tax is a type of tax that is considered to fluctuate in accordance with any or all financial increases both in earnings and values; a tax that is progressive in nature illustrate a larger tax withholding to exist in tandem with larger earnings – in the United States, income tax laws operate as a progressive taxation system

A regressive tax is considered to be a tax by which the bulk of its respective increases are presumed to be undertaken by individuals earning the lost amount of total income; while a regressive tax may not typically appear as an initial tax burden, the implicit costs within certain taxation may gradually amount to substantial costs and withholding(s)

Proportional taxesrequire that individual consumers are required to pay taxes strictly on the items, products, and services that they consume – a proportional tax is uniform with regard to income and earning withholding(s)

Types of Taxes

Consumption taxes are forms of taxation that are incurred based on individual – and sometimes collective – purchases in a commercial economy. Consumption taxes are incurred in accordance with the rate of purchase (or consumption) of a specific product or service

Excise Taxes are forms of taxes that are applicable to a specific group or category of products or services, upon which the manufacturer may share the tax burden with its respective consumers; within the United States, items such as fuel, cigarettes, and alcohol are typically considered excise taxes –excise taxes may be classified as indirect taxes due to the fact that consumers pay taxes upon purchase(s) to the merchant in lieu of the Federal Government

Sales tax is a type of tax that is established in contingency with the gross value of a product or service, which usually consists of a percentage of the gross value added to the final sale price; sales taxes are considered to be indirect taxes – this is due to the fact that the merchant collects the taxes from the consumer rather than the consumer paying taxes directly to the Federal Government

A Value Added Tax (VAT Tax) is a type of tax that relies on the net value of a product or service with regard to marketing, production, and distribution fees incurred in its sale; in contrast with standard sales taxes, VAT taxes are simply submitted once to the Federal Government

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