Term Paper: Government Taxation

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Government Taxation

Major Tax Structures

Income Tax

Sales Tax

Property Tax

Advantages and Disadvantages of Income Tax

Revenue Production

Equity

Economic Effects

Advantages and Disadvantages of Sales Tax

Revenue Production

Equity

Economic Effects

Advantages and Disadvantages of Property Tax

Revenue Production

Equity

Economic Effects

The paper is providing a brief discussion on the tax structures including income tax, sales tax, and property tax. In order to understand these tax structures, the paper is reflecting the advantages and disadvantages of each element of tax structure.

Major Tax Structures

Income Tax

An Income tax is referred to as a tax paid by people on their income to their national government. It is also referred to as the tax organizations pay on their profits to their national or local governments. There are different tax systems present with different levels of tax incidence, which includes the progressive, proportional, and regressive. Different systems are present to define the income in different ways while permitting the national reductions of incomes (Mikesell, 2011; Ault & Arnold, 2010; Dennis-Escoffier & Fortin, 2007).

Sales Tax

It is a tax, which a seller pays to a governing body for the sales of his products and services. The laws permit the seller to gather funds for the tax from consumers at the time of purchase or rendering the services. It is possible that laws may permit the sellers to enumerate the tax apart from the price of products and services while including in the prices. The amount of tax in this way is calculated with the application of a percentage rate to the price of a sale, which is taxable. The tax on the products and services paid to governing bodies by consumers is known as the use tax (Mikesell, 2011; Nelson, Collins, & Healy, 2008).

Property Tax

It is a levy on property, which owner of the properties is required to pay. The governing bodies can levy the property tax and the governing bodies can be a national government, a geographical region, and municipality. In this tax structure, government can require an appraisal of the monetary value of properties depending on which the tax is assessed. There is a property tax rate is sometimes given in the form of a percentage, which is calculated by multiplying the assessed value of property by the millage rate and dividing the product by 1000 (Mikesell, 2011; Spencer, 2012).

Advantages and Disadvantages of Income Tax

Revenue Production

The people are taxed depending on their income due to which the people earning insufficient earnings are required to pay less tax on their revenue produced. It is obvious that every person consume at different rate due to which the tax on earnings is appropriate equitable way of assessing tax as compared to the consumption tax (Mikesell, 2011). It can be said that the tax on earnings is considerably difficult to collect as compared to a consumption tax that can be levied at certain scale. It is believed that the income tax is a violation of individual freedom because it does not provide the right to people for taking decisions regarding the use of money earned (Ault & Arnold, 2010).

Equity

A tax on personal income is considered to be fair tax because it has to successfully meet the tests of horizontal and vertical equity. The concept of vertical equity is related to the taxes paid by people earning at different levels of income. It is known that different tax rates are applicable on the incomes of people while allowing the permitted exemptions and deductions. The organizations are required to pay federal and state taxes from their retained earnings to the governing bodies. It should not deter organizations from the retaining profits (Mikesell, 2011; Ault & Arnold, 2010; Dennis-Escoffier & Fortin, 2007).

Economic Effects

The increase in corporate income tax causes the increase in selling prices by organizations for maintaining their returns. The prices are not determined but they are at lower levels, which can provide maximum profits in short-term. If the tax is not shifted to consumers by increasing the prices of products and services, then it can reduce the return on corporate -- equity capital. It can become a burden on the entire capital rather than investing it in the corporate sector. As a result of which, the rate of growth of national product is intended to reduce. It can be said that the capital investment can influence the growth rates while indicating that technological innovation can affect the growth rate (Dennis-Escoffier & Fortin, 2007; Mikesell, 2011; Ault & Arnold, 2010).

Advantages and Disadvantages of Sales Tax

Revenue Production

It can be said that the revenue production has been playing a role for which the sales tax has a central role in establishing and sustaining the power of states while transforming the relationships with society. The state has developed a social contract based on bargaining around tax with the establishment of institution provided by the revenue generation imperatively. It is argued that the taxation is unambiguous and positive activity depending on the way in which the states and societies can achieve or fail the negotiation of revenue generation. The governments depending on tax revenue can gain encouragement in bargaining with taxpayers along with an exchange of compliance with tax payments for institutionalized influence over the policies of public.

Equity

It can be said that the impact of sales tax on equity is insignificant because it considers the fair tax of sales as a matter of opinion. It is considered as a fair tax, which means that the sales tax is equitable. However, it is argued that the ability to pay principle of taxation while considering the greater ability of people to pay higher incomes are required to pay a larger share of the tax burden (Dennis-Escoffier & Fortin, 2007; Ault & Arnold, 2010).

Economic Effects

A sales tax is embodied in proportional increase in price in the situations of employing purchase schedules in the context of administrative aids. It can be said that the value added taxes along with the gross sales taxes are not likely to be embodied in increase in prices as retail sales taxes. It has a significant influence on the profits of businesses (Mikesell, 2011; Dennis-Escoffier & Fortin, 2007; Spencer, 2012). The sales taxes imposed below the level of retail involve an interest load for covering the working capital investment in payments of taxes. It can be added to the price and profits influencing the sales taxes. It can reduce the consumption expenditure while saving insufficiently as compared to other major revenue taxes (Nelson, Collins, & Healy, 2008; Ault & Arnold, 2010; Dennis-Escoffier & Fortin, 2007).

Advantages and Disadvantages of Property Tax

Revenue Production

Revenue product on property tax enables the administrations to assess the product of the property assessment value related to the general property tax. It provides the benefits for the establishment of recovering the costs of infrastructure services from the new sectors of housing in a city. A special assessment is levied on the revenue product to defray the cost of replacing the existing infrastructure (Mikesell, 2011; Ault & Arnold, 2010). This cost is recovered entirely through a special assessment tax levied from the properties benefiting from the revenue product. It further includes the revenue flowing from the higher levels of governments in the form of grants in lieu of property tax. The governments can gain benefits from different services in this way, which include water supply, and garbage collection (Dennis-Escoffier & Fortin, 2007).

Equity

The property tax equity provides the opportunity to increase the capping assessment along with the homestead exemptions. It is provided that the redistribution of the property tax burden, homestead exemptions, and the arbitrary assessment caps impose certain limitations on the annual increase in the evaluated property value causing the loss of property tax… [END OF PREVIEW]

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