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THE GAME |
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{{Taxation}} |
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To '''tax''' (from the Latin ''[[wikt:en:taxo#Latin|taxo]]''; "I estimate") is to impose a financial charge or other levy upon a '''taxpayer''' (an individual or [[Legal person|legal entity]]) by a [[State (polity)|state]] or the functional equivalent of a state such that failure to pay is punishable by law. |
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Taxes are also imposed by many [[subnational entity|subnational entities]]. Taxes consist of [[direct tax]] or [[indirect tax]], and may be paid in [[money]] or as its labour equivalent (often but not always unpaid labour). A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government [...] a payment exacted by legislative authority."<ref name="Black">[[Black's Law Dictionary]], p. 1307 (5th ed. 1979).</ref> A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government [...] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."<ref name="Black"/> |
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The legal definition and the economic definition of taxes differ in that economists do not consider many transfers to governments to be taxes. For example, some transfers to the public sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments. Governments also obtain resources by creating money (e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public universities and museums), by imposing penalties (e.g., traffic fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector levied on a basis of predetermined criteria and without reference to specific benefit received. |
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In modern taxation systems, taxes are levied in money; but, [[Payment in kind|in-kind]] and ''[[corvée]]'' taxation are characteristic of traditional or pre-[[capitalism|capitalist]] states and their functional equivalents. The method of taxation and the government expenditure of taxes raised is often highly debated in [[politics]] and [[economics]]. Tax collection is performed by a government agency such as [[Canada Revenue Agency]], the [[Internal Revenue Service]] (IRS) in the [[United States]], or [[Her Majesty's Revenue and Customs]] (HMRC) in the [[United Kingdom|UK]]. When taxes are not fully paid, civil penalties (such as [[Fine (penalty)|fines]] or [[Asset forfeiture|forfeiture]]) or criminal penalties (such as [[incarceration]])<ref>See, e.g., {{usc|26|7203}} in the case of U.S. Federal taxes.</ref> may be imposed on the non-paying entity or individual. |
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== Purposes and effects == |
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Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of [[law]] and [[public order]], protection of [[property]], economic infrastructure ([[road]]s, [[legal tender]], enforcement of contracts, etc.), [[public works]], [[Social engineering (political science)|social engineering]], and the operation of government itself. Governments also use taxes to fund [[social welfare|welfare]] and [[public services]]. A portion of taxes also go to pay off the state's debt and the interest this debt accumulates. These services can include [[education system]]s, [[health care system]]s, [[pension]]s for the elderly, [[unemployment benefits]], and [[public transportation]]. [[Electric utility|Energy]], [[water management|water]] and [[waste management]] systems are also common [[Public utility|public utilities]]. Colonial and modernizing states have also used cash taxes to draw or force reluctant subsistence producers into cash economies. |
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Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as [[business]], or to redistribute resources between individuals or classes in the population. Historically, the [[nobility]] were supported by taxes on the poor; modern [[social security]] systems are intended to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign aid and military ventures, to influence the [[macroeconomic]] performance of the economy (the government's strategy for doing this is called its [[fiscal policy]]; see also [[tax exemption]]), or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive. |
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A nation's tax system is often a reflection of its communal values or/and the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden—who will pay taxes and how much they will pay—and how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing the tax system, these choices reflect the type of community that the public and/or government wishes to create. In countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power. |
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All large businesses incur administrative costs in the process of delivering revenue collected from customers to the suppliers of the goods or services being purchased. Taxation is no different, the resource collected from the public through taxation is always greater than the amount which can be used by the government. The difference is called ''[[compliance cost]]'', and includes for example the labour cost and other expenses incurred in complying with tax laws and rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres, is called [[hypothecation (taxation)|hypothecation]]. This practice is often disliked by [[finance minister]]s, since it reduces their freedom of action. Some economic theorists consider the concept to be intellectually dishonest since, in reality, money is [[fungibility|fungible]]. Furthermore, it often happens that taxes or excises initially levied to fund some specific government programs are then later diverted to the government general fund. In some cases, such taxes are collected in fundamentally inefficient ways, for example highway tolls. |
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Some economists, especially [[neo-classical economics|neo-classical economists]], argue that all taxation creates [[market distortion]] and results in economic inefficiency. They have therefore sought to identify the kind of tax system that would minimize this distortion. |
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Since governments also resolve commercial disputes, especially in countries with [[common law]], similar arguments are sometimes used to justify a [[sales tax]] or [[value added tax]]. Others (e.g. [[Libertarianism|libertarians]]) argue that most or all forms of taxes are [[Taxation as theft|immoral]] due to their involuntary (and therefore eventually [[Harm principle|coercive/violent]]) nature. The most extreme anti-tax view is [[anarcho-capitalism]], in which the provision of ''all'' social services should be voluntarily bought by the person(s) using them. |
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=== The Four "R"s === |
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{{Ref improve section|date=January 2010}} |
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{{Disputed-section|date=February 2011}} |
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Taxation has four main purposes or effects: Revenue, Redistribution, Repricing, and Representation.{{citation needed|date=September 2010}} |
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#The main purpose is [[revenue]]: taxes raise money to spend on armies, roads, schools and hospitals, and on more indirect government functions like market regulation or legal systems. |
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#A second is [[redistribution (economics)|redistribution]]. Normally, this means transferring wealth from the richer sections of society to poorer sections. |
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#A third purpose of taxation is [[repricing]]. Taxes are levied to address externalities; for example, [[tobacco]] is taxed to discourage smoking, and a [[carbon tax]] discourages use of carbon-based fuels. |
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#A fourth, consequential effect of taxation in its historical setting has been [[Representation (politics)|representation]]. The American revolutionary slogan "no taxation without representation" implied this: rulers tax citizens, and citizens demand accountability from their rulers as the other part of this bargain. Studies have shown that [[direct taxation]] (such as income taxes) generates the greatest degree of [[accountability]] and better governance, while [[indirect taxation]] tends to have smaller effects.<ref>{{cite web| url=http://www.oxfordgovernance.org/fileadmin/Publications/ER008.pdf | title=The tax consensus has failed! | publisher=The Oxford Council on Good Governance | last=Cobham | first=Alex |date=2007-01 | accessdate=2007-09-30}}</ref><ref>{{cite web | url=http://www.polisci.ucla.edu/faculty/ross/taxrep.pdf | title=Does Taxation Lead to Representation? | publisher=UCLA Department of Political Science | last=Ross | first=Michael, L. |date=2007-01-27 | accessdate=2007-09-30}}</ref> |
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=== Proportional, progressive, and regressive === |
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An important feature of tax systems is the percentage of the tax burden as it relates to income or consumption. The terms progressive, regressive, and proportional are used to describe the way the rate progresses from low to high, from high to low, or proportionally. The terms describe a distribution effect, which can be applied to any type of tax system (income or consumption) that meets the definition. |
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*A [[progressive tax]] is a tax imposed so that the [[effective tax rate]] increases as the amount to which the rate is applied increases. |
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*The opposite of a progressive tax is a [[regressive tax]], where the effective tax rate decreases as the amount to which the rate is applied increases. This effect is commonly produced where means testing is used to withdraw tax allowances or state benefits. |
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*In between is a [[proportional tax]], where the effective tax rate is fixed, while the amount to which the rate is applied increases. |
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The terms can also be used to apply meaning to the taxation of select consumption, such as a tax on luxury goods and the exemption of basic necessities may be described as having progressive effects as it increases a tax burden on high end consumption and decreases a tax burden on low end consumption.<ref>{{cite web|url=http://64.233.169.104/search?q=cache:zqosOQwOAQUJ:www.irs.gov/app/understandingTaxes/jsp/whys/lp/IWT5L1lp.jsp |title=Internal Revenue Service |publisher=64.233.169.104 |date= |accessdate=2009-03-27}}</ref><ref>{{cite web|url=http://concise.britannica.com/ebc/article-9370763/luxury-tax |title=luxury tax — Britannica Online Encyclopedia |publisher=Concise.britannica.com |date= |accessdate=2009-03-27}}</ref><ref>[http://links.jstor.org/sici?sici=0002-8282(196909)59%3A4%3C596%3ACEASTR%3E2.0.CO%3B2-3 jstor.org]</ref> |
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=== Direct and indirect === |
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{{Main|Direct tax|Indirect tax}} |
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Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of these terms can vary in different contexts, which can sometimes lead to confusion. An economic definition, by Atkinson, states that "...direct taxes may be adjusted to the individual characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespective of the circumstances of buyer or seller."<ref>A. B. Atkinson, Optimal Taxation and the Direct Versus Indirect Tax Controversy, 10 Can. J. Econ. 590, 592 (1977)</ref> According to this definition, for example, income tax is "direct", and sales tax is "indirect". In law, the terms may have different meanings. In U.S. constitutional law, for instance, direct taxes refer to [[poll tax]]es and [[property tax]]es, which are based on simple existence or ownership. Indirect taxes are imposed on events, rights, privileges, and activities. Thus, a tax on the sale of property would be considered an indirect tax, whereas the tax on simply owning the property itself would be a direct tax. The distinction between direct and indirect taxation can be subtle but can be important under the law. |
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== History == |
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=== Taxation levels === |
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[[File:Wells egyptian peasants taxes.png|thumb|300px|Egyptian [[peasant]]s seized for non-payment of taxes. ([[Old Kingdom|Pyramid Age]])]] |
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The first known system of taxation was in Ancient Egypt around [[30th century BC|3000 BC - 2800 BC]] in the first dynasty of the Old Kingdom.<ref>[http://www.upenn.edu/almanac/v48/n28/AncientTaxes.html Taxes in the Ancient World], University of Pennsylvania Almanac, ''Vol. 48, No. 28, April 2, 2002''</ref> Records from the time document that the pharaoh would conduct a biennial tour of the kingdom, collecting tax revenues from the people. Other records are granary receipts on [[Ostracon#Egyptian limestone and potsherd ostraca|limestone flakes]] and papyrus.<ref>Olmert, Michael (1996). ''Milton's Teeth and Ovid's Umbrella: Curiouser & Curiouser Adventures in History'', p.41. Simon & Schuster, New York. ISBN 0-684-80164-7.</ref> Early taxation is also described in the [[Bible]]. In [[Book of Genesis|Genesis]] (chapter 47, verse 24 - the [[New International Version]]), it states "But when the crop comes in, give a fifth of it to [[Pharaoh]]. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children". [[Joseph (Hebrew Bible)|Joseph]] was telling the people of [[Egypt]] how to divide their crop, providing a portion to the Pharaoh. A share (20%) of the crop was the tax. |
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Later, in the [[Persian Empire]], a regulated and sustainable tax system was introduced by [[Darius I the Great]] in 500 BC;<ref>http://www.1902encyclopedia.com/D/DAR/darius-i-the-great.html</ref> the [[Persia]]n system of taxation was tailored to each [[Satrapy]] (the area ruled by a Satrap or provincial governor). At differing times, there were between 20 and 30 Satrapies in the Empire and each was assessed according to its supposed productivity. It was the responsibility of the Satrap to collect the due amount and to send it to the emperor, after deducting his expenses (the expenses and the power of deciding precisely how and from whom to raise the money in the province, offer maximum opportunity for rich pickings). The quantities demanded from the various provinces gave a vivid picture of their economic potential. For instance, [[Babylon]] was assessed for the highest amount and for a startling mixture of commodities; 1,000 [[Talent (measurement)|silver talents]] and four months supply of food for the army. [[India]], a province fabled for its gold, was to supply gold dust equal in value to the very large amount of 4,680 silver talents. Egypt was known for the wealth of its crops; it was to be the granary of the Persian Empire (and, later, of the [[Roman Empire]]) and was required to provide 120,000 measures of grain in addition to 700 talents of silver. This was exclusively a tax levied on subject peoples. [[Persian people|Persians]] and [[Medes]] paid no tax, but, they were liable at any time to serve in the [[Military history of Iran#Achaemenid Era|army]].<ref>http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=aa65</ref> |
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The [[Rosetta Stone]], a tax concession issued by [[Ptolemy V]] in 196 BC and written in three languages "led to the most famous decipherment in history—the cracking of hieroglyphics".<ref>{{cite web|url=http://www.bbc.co.uk/ahistoryoftheworld/about/transcripts/episode33//|title=History of the World in 100 Objects:Rosetta Stone|author=British Museum|publisher=BBC}}</ref> |
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In India, Islamic rulers imposed [[jizya]] (a [[poll tax]] on non-Muslims) starting in the 11th century. It was abolished by [[Akbar]]. |
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Numerous records of government tax collection in Europe since at least the 17th century are still available today. But taxation levels are hard to compare to the size and flow of the economy since [[gross domestic product|production]] numbers are not as readily available, however. Government expenditures and revenue in France during the 17th century went from about 24.30 million ''[[livres]]'' in 1600-10 to about 126.86 million ''livres'' in 1650-59 to about 117.99 million ''livres'' in 1700-10 when [[government debt]] had reached 1.6 billion ''livres''. In 1780–89, it reached 421.50 million ''livres''.<ref>''Hoffman, Phillipe and Kathryn Norberg (1994), <u>Fiscal Crises, Liberty, and Representative Government, 1450-1789</u>, p. 238.</ref> Taxation as a percentage of production of final goods may have reached 15%–20% during the 17th century in places such as [[France]], the [[Netherlands]], and [[Scandinavia]]. During the war-filled years of the eighteenth and early nineteenth century, tax rates in Europe increased dramatically as war became more expensive and governments became more centralized and adept at gathering taxes. This increase was greatest in England, [[Peter Mathias]] and Patrick O'Brien found that the tax burden increased by 85% over this period. Another study confirmed this number, finding that per capita tax revenues had grown almost sixfold over the eighteenth century, but that steady economic growth had made the real burden on each individual only double over this period before the industrial revolution. [[Effective tax rate|Average tax rates]] were higher in Britain than France the years before the [[French Revolution]], twice in per capita income comparison, but they were mostly placed on international trade. In France, taxes were lower but the burden was mainly on landowners, individuals, and internal trade and thus created far more resentment.<ref>''Hoffman, Phillipe and Kathryn Norberg (1994), <u>Fiscal Crises, Liberty, and Representative Government, 1450-1789</u>, p. 300 .</ref> |
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Taxation as a percentage of [[Gross domestic product|GDP]] in 2003 was 56.1% in [[Denmark]], 54.5% in France, 49.0% in the [[Euro]] area, 42.6% in the [[United Kingdom]], 35.7% in the [[United States]], 35.2% in [[Republic of Ireland|Ireland]], and among all [[OECD]] members an average of 40.7%.<ref>{{cite web|url=http://www.oecd.org/topicstatsportal/0,2647,en_2825_495684_1_1_1_1_1,00.html|title=OECD national accounts|accessdate=2007-03-01}}</ref><ref>[http://www.forbes.com/global/2004/0524/074chart2.html Tax/Spending Burden], Forbes magazine, ''05-24-04''</ref> |
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=== Forms of taxation === |
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In monetary economies prior to fiat banking, a critical form of taxation was [[seigniorage]], the tax on the creation of money. |
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Other obsolete forms of taxation include: |
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*[[Scutage]], which is paid in lieu of military service; strictly speaking, it is a commutation of a non-tax obligation rather than a tax as such but functioning as a tax in practice. |
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*[[Tallage]], a tax on feudal dependents. |
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*[[Tithe]], a tax-like payment (one tenth of one's earnings or agricultural produce), paid to the Church (and thus too specific to be a tax in strict technical terms). This should not be confused with the modern practice of the same name which is normally voluntary. |
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*(Feudal) aids, a type of tax or due that was paid by a vassal to his lord during feudal times. |
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*[[Danegeld]], a medieval land tax originally raised to pay off raiding Danes and later used to fund military expenditures. |
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*[[Carucage]], a tax which replaced the danegeld in England. |
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*[[Tax farming]], the principle of assigning the responsibility for tax revenue collection to private citizens or groups. |
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*[[Socage]], a feudal tax system based on land rent. |
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*[[Burgage]], a feudal tax system based on land rent. |
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Some principalities taxed windows, doors, or cabinets to reduce consumption of imported glass and hardware. Armoires, hutches, and wardrobes were employed to evade taxes on doors and cabinets. In some circumstances, taxes are also used to enforce public policy like congestion charge (to cut road traffic and encourage public transport) in London. In Tsarist Russia, [[beard tax|taxes]] were clamped on beards. Today, one of the most-complicated taxation systems worldwide is in Germany. Three quarters of the world's taxation literature refers to the German system.{{Citation needed|date=May 2010}} There are 118 laws, 185 forms, and 96,000 regulations, spending [[Euro|€]]3.7 billion to collect the income tax. Today, governments in more advanced economies in (i.e. Europe and North America) tend to rely more on direct taxes, while developing economies (i.e. India and several African countries) rely more on indirect taxes. |
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== Tax rates == |
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{{Main|Tax rate}} |
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Taxes are most often levied as a percentage, called the ''tax rate''. An important distinction when talking about tax rates is to distinguish between the marginal rate and the effective (average) rate. The effective rate is the total tax paid divided by the total amount the tax is paid on, while the marginal rate is the rate paid on the next dollar of income earned. For example, if income is taxed on a formula of 5% from $0 up to $50,000, 10% from $50,000 to $100,000, and 15% over $100,000, a [[wikt:taxpayer|taxpayer]] with income of $175,000 would pay a total of $18,750 in taxes. |
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:Tax calculation |
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::(0.05*50,000) + (0.10*50,000) + (0.15*75,000) = 18,750 |
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:The "effective rate" would be 10.7%: |
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::18,750/175,000 = 0.107 |
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:The "marginal rate" would be 15%. |
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== Economics of taxation == |
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In economic terms, taxation transfers [[wealth]] from households or businesses to the government of a nation. The side-effects of taxation and theories about how best to tax are an important subject in [[microeconomics]]. Taxation is almost never a simple transfer of wealth. Economic theories of taxation approach the question of how to minimize the loss of [[Welfare economics|economic welfare]] through taxation and also discuss how a nation can perform redistribution of wealth in the most efficient manner. |
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=== Deadweight costs of taxation === |
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The introduction of taxes into a market usually reduces [[economic efficiency]] by causing [[deadweight loss]]. In a competitive market the [[price]] of a particular [[economic good]] adjusts to ensure that all trades which benefit both the buyer and the seller of a good occur. The introduction of a tax causes the price received by the seller to be less than the cost to the buyer by the amount of the tax. This causes fewer trades to occur, which reduces [[welfare economics|economic welfare]] in markets without [[Externality|externalities]]: the individuals or businesses involved are less well off than before the tax. The [[tax burden]] and the amount of deadweight cost is dependent on the [[elasticity (economics)|elasticity]] of supply and demand for the good taxed. |
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Most taxes—including [[income tax]] and [[sales tax]]—can have significant deadweight costs. The only way to avoid deadweight costs in an economy that is generally competitive is to refrain from taxes that change [[economic incentive]]s. Such taxes include the [[land value tax]],<ref>{{cite book|url=http://books.google.com/?id=jkogP2U4k0AC&pg=PA73&lpg=PA73&dq=disadvantages+of+land+value+taxation |title=Land Value Taxation: An Applied Analysis, William J. McCluskey, Riël C. D. Franzsen |publisher=Books.google.com |date= |accessdate=2009-03-27|isbn=9780754614906|author1=McCluskey, William J|author2=Franzsen, Riël C. D|year=2005}}</ref> where the tax is on a good in completely inelastic supply, a [[lump sum tax]] such as a [[poll tax]] (head tax) which is paid by all adults regardless of their choices. Arguably a [[windfall profits tax]] which is entirely unanticipated can also fall into this category. |
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=== Pigovian taxes === |
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The existence of a tax can ''increase'' economic efficiency in some cases. If there is a [[negative externality]] associated with a good, meaning that it has negative effects not felt by the consumer, then a free market will trade too much of that good. By taxing the good, the government can increase overall welfare as well as raising revenue. This type of tax is called a [[Pigovian tax]], after economist [[Arthur Cecil Pigou|Arthur Pigou]]. |
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Possible Pigovian taxes include those on polluting fuels (like [[petrol]]), taxes on goods which incur public healthcare costs (such as [[alcohol]] or [[tobacco]]), and charges for existing 'free' public goods (like [[congestion charging]]) are another possibility. |
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=== Transparency and simplicity === |
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Another concern is that the complicated tax codes of developed economies offer perverse [[economic incentive]]s. The more details of [[tax policy]] there are, the more opportunities for legal [[tax avoidance]] and illegal [[tax evasion]]; these not only result in lost revenue, but involve additional deadweight costs: for instance, payments made for tax advice are essentially deadweight costs because they add no wealth to the economy. [[Perverse incentive]]s also occur because of non-taxable 'hidden' transactions; for instance, a sale from one company to another might be liable for [[sales tax]], but if the same goods were shipped from one branch of a corporation to another, no tax would be payable. |
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To address these issues, economists often suggest simple and transparent tax structures which avoid providing loopholes. Sales tax, for instance, can be replaced with a [[value added tax]] which disregards intermediate transactions. |
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=== Tax incidence === |
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{{Main|Tax incidence}} |
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{{See also|Effect of taxes and subsidies on price}} |
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Law establishes from whom a tax is collected. In many countries, taxes are imposed on business (such as [[corporate tax]]es or portions of [[payroll tax]]es). However, who ultimately pays the tax (the tax "burden") is determined by the marketplace as taxes become [[Effect of taxes and subsidies on price|embedded]] into production costs. Economic theory suggests that the economic effect of tax does not necessarily fall at the point where it is legally levied. For instance, a tax on employment paid by employers will impact on the employee, at least in the long run. The greatest share of the tax burden tends to fall on the most inelastic factor involved—the part of the transaction which is affected least by a change in price. So, for instance, a tax on wages in a town will (at least in the long run) affect property-owners in that area. |
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[[File:Tax deadweight.gif|thumb|right|250px|Diagram illustrating taxes effect]] |
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Depending on how quantities supplied and demanded vary with price (the "elasticities" of supply and demand), a tax can be absorbed by the seller (in the form of lower pre-tax prices), or by the buyer (in the form of higher post-tax prices). If the elasticity of supply is low, more of the tax will be paid by the supplier. If the elasticity of demand is low, more will be paid by the customer; and, contrariwise for the cases where those elasticities are high. If the seller is a competitive firm, the tax burden is distributed over the [[factors of production]] depending on the elasticities thereof; this includes workers (in the form of lower wages), capital investors (in the form of loss to shareholders), landowners (in the form of lower rents), entrepreneurs (in the form of lower wages of superintendence) and customers (in the form of higher prices). |
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To illustrate this relationship, suppose that the market price of a product is $1.00, and that a $0.50 tax is imposed on the product that, by law, is to be collected from the seller. If the product has an elastic demand, a greater portion of the tax will be absorbed by the seller. This is because goods with elastic demand cause a large decline in quantity demanded for a small increase in price. Therefore in order to stabilize sales, the seller absorbs more of the additional tax burden. For example, the seller might drop the price of the product to $0.70 so that, after adding in the tax, the buyer pays a total of $1.20, or $0.20 more than he did before the $0.50 tax was imposed. In this example, the buyer has paid $0.20 of the $0.50 tax (in the form of a post-tax price) and the seller has paid the remaining $0.30 (in the form of a lower pre-tax price).<ref>''Parkin, Michael (2006), <u>Principles of Microeconomics</u>, p. 134.</ref> |
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=== Costs of compliance === |
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Although governments must spend money on tax collection activities, some of the costs, particularly for keeping records and filling out forms, are borne by businesses and by private individuals. These are collectively called costs of compliance. More complex tax systems tend to have higher costs of compliance. This fact can be used as the basis for practical or moral arguments in favor of tax simplification (for example, [[FairTax]] and [[flat tax]] proposals). |
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== Kinds of taxes == |
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The [[Organisation for Economic Co-operation and Development]] (OECD) publishes an analysis of tax systems of member countries. As part of such analysis, OECD developed a definition and system of classification of internal taxes,<ref>[http://www.oecd.org/daf/mai/pdf/eg2/eg2963e.pdf Definition of Taxes (Note by the Chairman)], 1996.</ref> generally followed below. In addition, many countries impose taxes ([[tariff]]s) on the import of goods. |
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=== Taxes on income === |
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==== Income tax ==== |
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{{Main|Income tax}} |
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Many jurisdictions tax the income of individuals and business entities, including corporations. Generally the tax is imposed on net profits from business, net gains, and other income. Computation of income subject to tax may be determined under accounting principles used in the jurisdiction, which may be modified or replaced by tax law principles in the jurisdiction. The incidence of taxation varies by system, and some systems may be viewed as [[Progressive tax|progressive]] or [[Regressive tax|regressive]]. Rates of tax may vary or be constant (flat) by income level. Many systems allow individuals certain personal allowances and other nonbusiness reductions to taxable income. |
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Personal income tax is often collected on a [[PAYE|pay-as-you-earn]] basis, with small corrections made soon after the end of the [[tax year]]. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and [[tax refund]]s from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years. |
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==== Capital gains tax ==== |
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{{Main|Capital gains tax}} |
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Most jurisdictions imposing an income tax treat [[capital gain]]s as part of income subject to tax. Capital gain is generally gain on sale of capital assets, ''i.e.'', those assets not held for sale in the ordinary course of business. Capital assets include personal assets in many jurisdictions. Some jurisdictions provide preferential rates of tax or only partial taxation for capital gains. Some jurisdictions impose different rates or levels of capital gains taxation based on the length of time the asset was held. |
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==== Corporate tax ==== |
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{{Main|Corporate tax}} |
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Corporate tax refers to income, capital, net worth, or other taxes imposed on corporations. Rates of tax and the taxable base for corporations may differ from those for individuals or other taxable persons. |
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=== Social security contributions === |
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Many countries provide publicly funded retirement or health care systems.<ref>See [http://www.ssa.gov/policy/docs/progdesc/index.html Social Security Programs Throughout the World] on the U.S. Social Security website for links to individual country program descriptions.</ref> In connection with these systems, the country typically requires employers and/or employees to make compulsory payments.<ref>By contrast, some countries, such as [http://www.ssa.gov/policy/docs/progdesc/ssptw/2010-2011/asia/newzealand.html New Zealand], finance the programs through other taxes.</ref> These payments are often computed by reference to wages or earnings from self employment. Tax rates are generally fixed, but a different rate may be imposed on employers than on employees.<ref>See, ''e.g.'', [http://labour.nic.in/ss/overview.html India Social Security overview].</ref> Some systems provide an upper limit on earnings subject to the tax. A few systems provide that the tax is payable only on wages above a particular amount. Such upper or lower limits may apply for retirement but not health care components of the tax. |
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=== Taxes on payroll or workforce === |
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Unemployment and similar taxes are often imposed on employers based on total payroll. These taxes may be imposed at both the country and sub-country levels.<ref>See, ''e.g.'', United States [[Federal Unemployment Tax Act]].</ref> |
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=== Taxes on property === |
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Recurrent [property taxes] may be imposed on immovable property (real property) and some classes of movable property. In addition, recurrent taxes may be imposed on net wealth of individuals or corporations.<ref>Taxes on the net wealth of corporations are often referred to as [[corporate tax]].</ref> Many jurisdictions impose [[estate tax]], [[gift tax]] or other [[inheritance tax]]es on property at death or gift transfer. Some jurisdictions impose taxes on financial or capital transactions. |
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==== Inheritance tax ==== |
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{{Main|Inheritance tax}} |
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Inheritance tax, estate tax, and death tax or duty are the names given to various taxes which arise on the death of an individual. In United States tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction does not apply in other jurisdictions; for example, if using this terminology UK inheritance tax would be an estate tax. |
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==== Expatriation Tax ==== |
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{{Main|Expatriation Tax}} |
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An Expatriation Tax is a tax on individuals who renounce their [[citizenship]] or residence. The tax is often imposed based on a deemed disposition of all the individual's property. One example is the [[United States]] under the [[American Jobs Creation Act]], where any individual who has a net worth of $2 million or an average income-tax liability of $127,000 who renounces his or her citizenship and leaves the country is automatically assumed to have done so for tax avoidance reasons and is subject to a higher tax rate.<ref>[http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000877----000-.html 26 USC 877].</ref> |
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==== Transfer tax ==== |
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{{Main|Transfer tax}} |
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Historically, in many countries, a contract needed to have a stamp affixed to make it valid. The charge for the stamp was either a fixed amount or a percentage of the value of the transaction. In most countries the stamp has been abolished but [[stamp duty]] remains. Stamp duty is levied in the UK on the purchase of shares and securities, the issue of bearer instruments, and certain partnership transactions. Its modern derivatives, [[stamp duty reserve tax]] and [[stamp duty land tax]], are respectively charged on transactions involving securities and land. Stamp duty has the effect of discouraging speculative purchases of assets by decreasing liquidity. In the [[United States]] transfer tax is often charged by the state or local government and (in the case of real property transfers) can be tied to the recording of the deed or other transfer documents. |
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==== Wealth (net worth) tax ==== |
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{{Main|Wealth tax}} |
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Some countries' governments will require declaration of the tax payers' [[balance sheet]] (assets and liabilities), and from that exact a tax on [[net worth]] (assets minus liabilities), as a percentage of the net worth, or a percentage of the net worth exceeding a certain level. The tax may be levied on "[[natural person|natural]]" or [[juristic person|legal "persons"]]. An example is France's [[Solidarity tax on wealth|ISF]]. |
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=== Taxes on goods and services === |
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==== Value added tax / Goods and Services Tax ==== |
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{{Main|Value added tax}} |
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A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single Business Tax, or Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that creates value. To give an example, sheet steel is imported by a machine manufacturer. That manufacturer will pay the VAT on the purchase price, remitting that amount to the government. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but will remit to the government only the excess related to the "value added" (the price over the cost of the sheet steel). The wholesale distributor will then continue the process, charging the retail distributor the VAT on the entire price to the retailer, but remitting only the amount related to the distribution mark-up to the government. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of identical rates, the total tax paid is the same, but it is paid at differing points in the process. |
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VAT is usually administrated by requiring the company to complete a VAT return, giving details of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred to as output tax). The difference between output tax and input tax is payable to the Local Tax Authority. If input tax is greater than output tax the company can claim back money from the Local Tax Authority. |
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==== Sales taxes ==== |
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{{Main|Sales tax}} |
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Sales taxes are levied when a commodity is sold to its final consumer. Retail organizations contend that such taxes discourage retail sales. The question of whether they are generally progressive or regressive is a subject of much current debate. People with higher incomes spend a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore common to exempt food, utilities and other necessities from sales taxes, since poor people spend a higher proportion of their incomes on these commodities, so such exemptions make the tax more progressive. This is the classic "You pay for what you spend" tax, as only those who spend money on non-exempt (i.e. luxury) items pay the tax. |
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A small number of U.S. states rely entirely on sales taxes for state revenue, as those states do not levy a state income tax. Such states tend to have a moderate to large amount of tourism or inter-state travel that occurs within their borders, allowing the state to benefit from taxes from people the state would otherwise not tax. In this way, the state is able to reduce the tax burden on its citizens. The U.S. states that do not levy a state income tax are Alaska, Tennessee, Florida, Nevada, South Dakota, Texas,<ref>Although Texas has no individual income tax, the state does impose a [[franchise tax]]—soon to be replaced by a margin tax—on business activity that, while not denominated as an income tax, is in substance a kind of income tax.</ref> Washington state, and Wyoming. Additionally, New Hampshire and Tennessee levy state income taxes only on dividends and interest income. Of the above states, only Alaska and New Hampshire do not levy a state sales tax. Additional information can be obtained at the [http://www.taxadmin.org/ Federation of Tax Administrators] website. |
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In the United States, there is a growing movement<ref>{{cite news|url=http://www.economist.com/business/displaystory.cfm?story_id=13110436 |title=Economist.com |publisher=Economist.com |date= 2009-02-12|accessdate=2009-03-27}}</ref> for the replacement of all federal payroll and income taxes (both corporate and personal) with a national retail sales tax and monthly tax rebate to households of citizens and legal resident aliens. The tax proposal is named [[FairTax]]. In Canada, the federal sales tax is called the Goods and Services tax (GST) and now stands at 5%. The provinces of British Columbia, Saskatchewan, Manitoba, Ontario and Prince Edward Island also have a provincial sales tax [PST]. The provinces of Nova Scotia, New Brunswick, and Newfoundland & Labrador have harmonized their provincial sales taxes with the GST—Harmonized Sales Tax [HST], and thus is a full VAT. The province of Quebec collects the Quebec Sales Tax [QST] which is based on the GST with certain differences. Most businesses can claim back the GST, HST and QST they pay, and so effectively it is the final consumer who pays the tax. |
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==== Excises ==== |
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{{Main|Excise}} |
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Unlike an ''ad valorem'', an excise is not a function of the value of the product being taxed. Excise taxes are based on the quantity, not the value, of product purchased. For example, in the United States, the Federal government imposes an excise tax of 18.4 cents per U.S. gallon (4.86¢/L) of gasoline, while state governments levy an additional 8 to 28 cents per U.S. gallon. Excises on particular commodities are frequently [[hypothecation (taxation)|hypothecated]]. For example, a [[Fuel tax|fuel excise]] ([[use tax]]) is often used to pay for [[public transport]]ation, especially [[road]]s and [[bridge]]s and for the protection of the environment. A special form of hypothecation arises where an excise is used to compensate a party to a transaction for alleged uncontrollable abuse; for example, a [[blank media tax]] is a tax on recordable media such as [[CD-R]]s, whose proceeds are typically allocated to [[copyright]] holders. Critics charge that such taxes blindly tax those who make legitimate and illegitimate usages of the products; for instance, a person or corporation using CD-R's for data archival should not have to subsidize the producers of popular music. |
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Excises (or exemptions from them) are also used to modify consumption patterns ([[Social engineering (political science)|social engineering]]). For example, a high excise is used to discourage [[alcoholic beverage|alcohol]] consumption, relative to other goods. This may be combined with hypothecation if the proceeds are then used to pay for the costs of treating illness caused by alcohol abuse. Similar taxes may exist on [[tobacco]], [[pornography]], etc., and they may be collectively referred to as "[[sin tax]]es". A [[carbon tax]] is a tax on the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel, jet fuels, and natural gas. The object is to reduce the release of carbon into the atmosphere. In the United Kingdom, [[vehicle excise duty]] is an annual tax on vehicle ownership. |
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=== Tariff === |
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{{Main|Tariff}} |
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An import or export tariff (also called customs duty or impost) is a charge for the movement of goods through a political border. Tariffs discourage [[trade]], and they may be used by governments to protect domestic industries. A proportion of tariff revenues is often hypothecated to pay government to maintain a navy or border police. The classic ways of cheating a tariff are [[smuggling]] or declaring a false value of goods. [[Tax, tariff and trade]] rules in modern times are usually set together because of their common impact on [[industrial policy]], [[investment policy]], and [[agricultural policy]]. A [[trade bloc]] is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each other, and possibly to impose protective tariffs on imports from outside the bloc. A [[customs union]] has a [[common external tariff]], and the participating countries share the revenues from tariffs on goods entering the customs union. |
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=== Other taxes === |
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==== License fees ==== |
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Occupational taxes or license fees may be imposed on businesses or individuals engaged in certain businesses. Many jurisdictions impose a tax on vehicles. |
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==== Poll tax ==== |
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{{Main|Poll tax}} |
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A poll tax, also called a ''per capita tax'', or ''capitation tax'', is a tax that levies a set amount per individual. It is an example of the concept of [[fixed tax]]. One of the earliest taxes mentioned in the [[Bible]] of a half-shekel per annum from each adult Jew (Ex. 30:11-16) was a form of poll tax. Poll taxes are administratively cheap because they are easy to compute and collect and difficult to cheat. Economists have considered poll taxes economically efficient because people are presumed to be in fixed supply. However, poll taxes are very unpopular because poorer people pay a higher proportion of their income than richer people. In addition, the supply of people is in fact not fixed over time: on average, couples will choose to have fewer children if a poll tax is imposed.<ref>{{cite web|url=http://www.taxpolicycenter.org/TaxFacts/listdocs.cfm?topic2id=60 |title=Tax Facts | Tax Facts Listing |publisher=Taxpolicycenter.org |date= |accessdate=2009-03-27}}</ref>{{Failed verification|date=June 2011}} The introduction of a poll tax in medieval England was the primary cause of the 1381 [[Peasants' Revolt]]. Scotland was the first to be used to test the new poll tax in 1989 with England and Wales in 1990. The change from a progressive local taxation based on property values to a single-rate form of taxation regardless of ability to pay (the [[Community Charge]], but more popularly referred to as the Poll Tax), led to widespread refusal to pay and to incidents of civil unrest, known colloquially as the '[[Poll Tax Riots]]'. |
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==== Other ==== |
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Some types of taxes have been proposed but not actually adopted in any major jurisdiction. These include: |
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* [[Bank tax]] |
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* [[Financial transaction tax]]es including currency transaction taxes |
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=== Descriptive labels given some taxes === |
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==== Ad valorem ==== |
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{{Main|Ad valorem}} |
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An ''ad valorem'' tax is one where the tax base is the value of a good, service, or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value added taxes are different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). An alternative to ad valorem taxation is an excise tax, where the tax base is the quantity of something, regardless of its price. |
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==== Consumption tax ==== |
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{{Main|Consumption tax}} |
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'''Consumption tax''' refers to any tax on non-investment spending, and can be implemented by means of a sales tax, consumer value added tax, or by modifying an income tax to allow for unlimited deductions for investment or savings. |
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==== Environmental tax ==== |
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{{See also|Ecotax|Gas Guzzler Tax|Polluter pays principle}} |
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This includes [[natural resources consumption tax]], greenhouse gas tax ([[Carbon tax]]), "sulfuric tax", and others. The stated purpose is to reduce the environmental impact by [[Effect of taxes and subsidies on price|repricing]]. |
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=== Fees and effective taxes === |
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Governments may charge user [[fee]]s, [[Tariff|tolls]], or other types of assessments in exchange of particular goods, services, or use of property. These are generally not considered taxes, as long as they are levied as payment for a direct benefit to the individual paying.<ref>[http://www.ncsu.edu/project/calscommblogs/economic/archives/2007/05/the_difference.html Taxes versus fees]</ref> Such fees include: |
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*Tolls: a fee charged to travel via a [[Toll road|road]], [[Toll bridge|bridge]], [[Toll tunnel|tunnel]], [[canal]], [[waterway]] or other transportation facilities. Historically tolls have been used to pay for public bridge, road and tunnel projects. They have also been used in privately constructed transport links. The toll is likely to be a fixed charge, possibly graduated for vehicle type, or for distance on long routes. |
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*User fees, such as those charged for use of parks or other government owned facilities. |
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*Ruling fees charged by governmental agencies to make determinations in particular situations. |
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Some scholars refer to certain economic effects as taxes, though they are not levies imposed by governments. These include: |
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*[[Inflation tax]]: the economic disadvantage suffered by holders of [[cash and cash equivalents]] in one denomination of [[currency]] due to the effects of [[expansionary monetary policy]]<ref>Some economists{{who|date=September 2010}} hold that the inflation tax affects the lower and middle classes more than the rich, as they hold a larger fraction of their income in cash, they are much less likely to receive the newly created monies before the market has adjusted with inflated prices, and more often have fixed incomes, [[wages]] or [[pensions]]. Some argue that inflation is a [[regressive tax|regressive]] [[consumption tax]]. Also see Andrés Erosa and Gustavo Ventura, "[http://www.ssc.uwo.ca/economics/econref/workingpapers/researchreports/wp2000/wp2000_1.pdf On inflation as a regressive consumption tax]". Some{{who|date=June 2011}} claim there are systemic effects of an expansionary monetary policy, which are also definitively taxing, imposing a financial charge on some as a result of the policy. Because the effects of monetary expansion or [[counterfeiting]] are never uniform over an entire economy, the policy influences capital transfers in the market, creating [[economic bubbles]] where the new monies are first introduced. Economic bubbles increase market instability, and therefore increase investment risk, creating the conditions common to a [[recession]]. This particular tax can be understood to be levied on future generations that would have benefited from economic growth, and it has a 100% transfer cost (so long as people are not acting against their interests, increased uncertainty benefits no-one). One example of a strong supporter of this tax was the former [[Federal Reserve]] chair [[Beardsley Ruml]].</ref> |
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*[[Financial repression]]: Government policies such as interest rate caps on government debt, financial regulations such as reserve requirements and capital controls, and barriers to entry in markets where the government owns or controls businesses.<ref>See, ''e.g.'', Reinhart, Carmen M. and Rogoff, Kenneth S., ''This Time is Different''. Princeton and Oxford: Princeton University Press, 2008 (p. 143), [https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf The Liquidation of Government Debt, Reinhart, Carmen M. & Sbrancia, M. Belen, p. 19], Giovannini, Alberto and de Melo, Martha, ''Government Revenue from Financial Repression''. The American Economic Review, Vol. 83, No. 4 Sep. 1993 (pp. 953-963).</ref> |
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== Views on taxation == |
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=== Ethical basis of taxation === |
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According to most [[Political philosophy|political philosophies]], taxes are justified as they fund activities that are necessary and beneficial to [[society]]. Additionally, [[progressive tax]]ation can be used to reduce [[economic inequality]] in a society. According to this view, taxation in modern nation-states benefit the majority of the population and [[social development]].<ref>[http://www.unescap.org/esid/psis/publications/theme2002/chap5.asp Population and Social Integration Section (PSIS)], United Nations Social and Economic Commission for Asia and the Pacific</ref> A common presentation of this view, paraphrasing various statements by [[Oliver Wendell Holmes, Jr.]] is "Taxes are the price of civilization".<ref>{{cite book|url=http://books.google.com/?id=kjwVASsTUm0C&pg=PA1045&lpg=PA1045&dq=taxation+price+civilisation+holmes+quote |title=Quote it Completely! |publisher=Books.google.com.au |date= 1998-09|accessdate=2009-03-27|isbn=9781575884004|author1=Gerhart, Eugene C}}</ref> |
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It can also be argued that in a [[democracy]], because the government is the party performing the act of imposing taxes, society as a whole decides how the tax system should be organized.<ref>Logue, Danielle. 2009. "Moving policy forward: 'brain drain' as a wicked problem." Globalisation, Societies & Education 7, no. 1: 41-50. Academic Search Premier, [[EBSCO Publishing|EBSCOhost]]. Retrieved February 18, 2009.</ref> The [[American Revolution]]'s "[[No taxation without representation]]" slogan implied this view. For traditional [[conservatives]], the payment of taxation is justified as part of the general obligations of citizens to obey the law and support established institutions. The conservative position is encapsulated in perhaps the most famous [[adage]] of [[public finance]], "An old tax is a good tax".<ref name="urlTax History Project: The Depression and Reform: FDRs Search for Tax Revision in N.Y. (Copyright, 2003, Tax Analysts)">{{cite web |url=http://www.taxhistory.org/thp/readings.nsf/ArtWeb/44DC64199FBB0ED885256DFE005981FE?OpenDocument |title=Tax History Project: The Depression and Reform: FDR's Search for Tax Revision in N.Y. (Copyright, 2003, Tax Analysts) |work= |accessdate=}}</ref> Conservatives advocate the "fundamental conservative premise that no one should be excused from paying for government, lest they come to believe that government is costless to them with the certain consequence that they will demand more government 'services'.".<ref>http://www.heritage.org/Research/Taxes/HL349.cfm</ref> [[Social democrats]] generally favor higher levels of taxation to fund public provision of a wide range of services such as universal [[health care]] and education, as well as the provision of a range of [[Welfare state|welfare benefits]].<ref>Ruiz del Portal, X. 2009. "A general principal–agent setting with non-differentiable mechanisms: Some examples." Mathematical Social Sciences 57, no. 2: 262-278. Academic Search Premier, EBSCOhost . Retrieved February 18, 2009.</ref> As argued by [[Tony Crosland]] and others, the capacity to tax income from capital is a central element of the social democratic case for a [[mixed economy]] as against [[Marxist]] arguments for comprehensive public ownership of capital.{{Citation needed|date=March 2011}} Many [[Libertarianism|libertarians]] recommend a minimal level of taxation in order to maximize the protection of [[liberty]].{{Citation needed|date=March 2011}} |
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Compulsory taxation of individuals, such as [[income tax]], is often justified on grounds including territorial [[sovereignty]], and the [[social contract]]. Defenders of business taxation argue that it is an efficient method of taxing income that ultimately flows to individuals, or that separate taxation of [[business]] is justified on the grounds that commercial activity necessarily involves use of publicly established and maintained economic infrastructure, and that businesses are in effect charged for this use.<ref>Van Der Graaf, Rieke, and Johannes J. M. Van Delden. 2009. ''Clarifying appeals to dignity in medical ethics from an historical perspective.'' Bioethics 23, no. 3: 151-160. Academic Search Premier, EBSCOhost. Retrieved February 18, 2009.</ref> [[Georgist]] economists argue that all of the economic rent collected from natural resources (land, mineral extraction, fishing quotas, etc.) is unearned income, and belongs to the community rather than any individual. They advocate a high tax (the "Single Tax") on land and other natural resources to return this unearned income to the state, but no other taxes. |
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=== Optimal taxation theory === |
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{{Main|Optimal tax}} |
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Most governments take revenue which exceeds that which can be provided by non-distortionary taxes or through taxes which give a double dividend. Optimal taxation theory is the branch of economics that considers how taxes can be structured to give the least deadweight costs, or to give the best outcomes in terms of [[social welfare]]. |
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The [[Ramsey problem]] deals with minimizing deadweight costs. Because deadweight costs are related to the [[elasticity (economics)|elasticity]] of supply and demand for a good, it follows that putting the highest tax rates on the goods for which there is most inelastic supply and demand will result in the least overall deadweight costs. |
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Some economists sought to integrate optimal tax theory with the [[social welfare function]], which is the economic expression of the idea that equality is valuable to a greater or lesser extent. If individuals experience [[diminishing returns]] from income, then the optimum distribution of income for society involves a progressive income tax. [[James Mirrlees|Mirrlees optimal income tax]] is a detailed theoretical model of the optimum progressive income tax along these lines. |
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Over the last years the validity of the theory of optimal taxation was discussed by many political economists. Canegrati (2007) demonstrated that if we move from the assumption that governments do not maximise the welfare of society but the probability of winning elections, the tax rates in equilibrium are lower for the most powerful groups of society, instead of being the lowest for the poorest as in the optimal theory of direct taxation developed by Atkinson and [[Joseph Stiglitz]]. See [[Canegrati's formulae]]. |
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=== Views opposed to taxation === |
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Because payment of tax is compulsory and enforced by the legal system, some political philosophies view [[taxation as theft]] (or as a violation of [[property rights]]), or tyranny, accusing the government of levying taxes via [[force (law)|force]] and [[coercive]] means.<ref>For an overview of the classical liberal perspective on taxation see [http://www.irefeurope.org/en/content/tax-and-justice www.irefeurope.org]</ref> [[Voluntaryism|Voluntaryists]], [[Individualist anarchism|individualist anarchists]], [[Objectivism (Ayn Rand)|objectivists]], [[anarcho-capitalism|anarcho-capitalists]], and [[Libertarianism|libertarians]] see taxation as government aggression (see [[zero aggression principle]]). The view that democracy legitimizes taxation is rejected by those who argue that all forms of government, including laws chosen by democratic means, are fundamentally oppressive. According to [[Ludwig von Mises]], "society as a whole" should not make such decisions, due to [[methodological individualism]].<ref>''[[Human Action]]'' [http://www.mises.org/humanaction/chap2sec4.asp Chapter II. Sec. 4. The Principle of Methodological Individualism] by Ludwig von Mises</ref> Libertarian opponents of taxation claim that governmental protection, such as police and defense forces might be replaced by [[market]] alternatives such as [[Private defense agency|private defense agencies]], [[arbitration]] agencies or voluntary [[contributions]].<ref>{{cite web |url=http://www.mises.org/story/2701 |title=The Rule of Law Without the State, |author=Spencer Heath MacCallum |publisher=[[Ludwig Von Mises Institute]] |date=2007-09-12 |accessdate =2008-08-16}}</ref> [[Walter E. Williams]], professor of economics at George Mason University, stated "Government income redistribution programs produce the same result as theft. In fact, that's what a thief does; he redistributes income. The difference between government and thievery is mostly a matter of legality."<ref>{{cite web| url=http://www.worldnetdaily.com/index.php?pageId=71517 |title=Government theft, American-style |last=Williams | first=Walter E. | publisher=WorldNetDaily | date=2008-08-06 | accessdate=2008-09-11}}</ref> |
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Discourse surrounding taxation generally places an emphasis on the intended benefits (healthcare, schools and so on), but rarely points to the harm caused by forced removal of possessions. |
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Taxation has also been opposed by [[communists]] and [[socialists]]. [[Karl Marx]] assumed that taxation would be unnecessary after the advent of communism and looked forward to the "withering away of the state". In socialist economies such as that of China, taxation played a minor role, since most government income was derived from the ownership of enterprises, and it was argued by some that taxation was not necessary.<ref name="isbn0-275-93688-0">{{cite book |author=Li, Jinyan |title=Taxation in the People's Republic of China |publisher=Praeger |location=New York |year=1991 |pages= |isbn=0-275-93688-0 |oclc= |doi= |accessdate=}}</ref> While the morality of taxation is sometimes questioned, most arguments about taxation revolve around the degree and method of taxation and associated [[government spending]], not taxation itself. |
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=== Effects of income taxation on division of labor === |
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If a tax is paid on outsourced services that is not also charged on services performed for oneself, then it may be cheaper to perform the services oneself than to pay someone else{{mdash}}even considering losses in economic efficiency.<ref>{{cite web|author=Johnsson, Richard |url=http://ideas.repec.org/p/hhs/ratioi/0040.html |title=Taxation and Domestic Free Trade |publisher=Ideas.repec.org |date= |accessdate=2009-03-27}}</ref><ref>Corsi, Jerome, 2007. "The VAT: Menace to Free Trade", WorldNetDaily Exclusive Commentary, [[WorldNetDaily]], February 3, 2007</ref> |
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For example, suppose jobs A and B are both valued at $1 on the market. And suppose that because of your unique abilities, you can do job A twice over (100% extra output) in the same effort as it would take you to do job B. But job B is the one that you need done right now. Under perfect division of labor, you would do job A and somebody else would do job B. Your unique abilities would always be rewarded. |
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Income taxation has the worst effect on division of labor in the form of barter. Suppose that the person doing job B is actually interested in having job A done for him. Now suppose you could amazingly do job A four times over, selling half your work on the market for cash just to pay your tax bill. The other half of the work you do for somebody who does job B twice over but he has to sell off half to pay his tax bill. You're left with one unit of job B, but only if you were 400% as productive doing job A! In this case of 50% tax on barter income, anything less than 400% productivity will cause the division of labor to fail. |
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In summary, depending on the situation a 50% tax rate can cause the division of labor to fail even where productivity gains of up to 300% would have resulted. Even a mere 30% tax rate can negate the advantage of a 100% productivity gain.<ref>Johnsson, Richard, 2004. "Taxation and Domestic Free Trade," Ratio Working Papers 40, The Ratio Institute, revised June 7, 2004.</ref> |
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== By country or region == |
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{{Col-begin}} |
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{{Col-2}} |
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*[[List of countries by tax revenue as percentage of GDP]] |
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*[[Tax rates around the world]] |
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*[[Taxation in Australia]] |
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*[[Taxation in Canada]] |
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*[[Taxation in Colombia]] |
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*[[Taxation in Denmark]] |
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*[[Taxation in France]] |
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*[[Taxation in Germany]] |
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*[[Taxation in Hong Kong]] |
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*[[Taxation in India]] |
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*[[Taxation in Indonesia]] |
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*[[Taxation in the Netherlands]] |
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{{Col-2}} |
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*[[Taxation in New Zealand]] |
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*[[Taxation in Norway]] |
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*[[Taxation in the Republic of Ireland]] |
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*[[Taxation in Russia]] |
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*[[Taxation in Singapore]] |
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*[[Taxation in Sweden]] |
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*[[Taxation in Switzerland]] |
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*[[Taxation in Tunisia]] |
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*[[Taxation in the European Union]] |
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*[[Taxation in the United Kingdom]] |
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*[[Taxation in the United States]] |
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{{Col-end}} |
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== See also == |
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{{Col-begin}} |
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{{Col-2}} |
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* [[Deadweight loss]] |
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* [[Dividend tax]] |
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* [[Fiscal incidence]] |
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* [[Fiscal neutrality]] |
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* [[Government budget deficit]] |
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* [[Laffer curve]] |
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* [[List of taxes]] |
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* [[Model audit]] |
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* [[Revolutionary tax]] |
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* [[Price ceiling]] |
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* [[Price floor]] |
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{{Col-2}} |
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* [[Tax competition]] |
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* [[Tax exporting]] |
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* [[Tax fraud]] |
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* [[Tax haven]] |
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* [[Tax incentive]] |
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* [[Tax law]] |
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* [[Tax resistance]] |
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* [[Tax shelter]] |
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* [[Taxation as slavery]] |
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* [[Taxpayer receipt]] |
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* [[Voluntary taxation]] |
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{{Col-end}} |
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== Notes == |
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{{Reflist|colwidth=30em}} |
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== External links == |
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{{Sister project links}} |
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<!--Please do not add links to organizations providing tax services. Such links will be deleted. Thanks for understanding.--> |
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*[http://stats.oecd.org/Index.aspx?DataSetCode=REV OECD tax statistics] |
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[[Category:Taxation| ]] |
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[[Category:Basic financial concepts]] |
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[[Category:Finance]] |
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[[Category:Public finance]] |
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{{Link FA|no}} |
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[[ar:ضريبة]] |
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[[an:Impuesto]] |
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[[arc:ܡܕܐܬܐ]] |
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[[az:Vergi]] |
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[[zh-min-nan:Cho͘-soè]] |
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[[be:Падатак]] |
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[[be-x-old:Падатак]] |
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[[bs:Porez]] |
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[[br:Tell]] |
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[[bg:Данък]] |
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[[ca:Impost]] |
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[[cs:Daň]] |
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[[cy:Treth]] |
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[[da:Skat]] |
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[[de:Steuer]] |
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[[et:Maksud]] |
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[[el:Φορολογία]] |
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[[es:Impuesto]] |
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[[eo:Imposto]] |
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[[eu:Zerga]] |
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[[fa:مالیات]] |
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[[fr:Impôt]] |
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[[gl:Imposto]] |
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[[ko:세금]] |
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[[hi:कर]] |
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[[hr:Porez]] |
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[[io:Imposto]] |
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[[id:Pajak]] |
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[[is:Skattur]] |
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[[it:Imposta]] |
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[[he:מס]] |
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[[kn:ತೆರಿಗೆ]] |
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[[krc:Налог]] |
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[[kk:Салық]] |
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[[sw:Kodi (ushuru)]] |
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[[la:Tributum]] |
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[[lv:Nodoklis]] |
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[[lb:Steier]] |
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[[lt:Mokestis]] |
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[[hu:Adó]] |
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[[ml:നികുതി]] |
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[[arz:ضريبه]] |
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[[ms:Cukai]] |
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[[nl:Belasting (fiscaal)]] |
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[[new:कर]] |
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[[ja:租税]] |
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[[no:Skatt]] |
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[[nn:Skatt]] |
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[[oc:Impòst]] |
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[[pnb:ٹیکس]] |
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[[pl:Podatek]] |
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[[pt:Imposto]] |
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[[ro:Impozit]] |
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[[ru:Налог]] |
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[[rue:Дань]] |
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[[sah:Түһээн]] |
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[[sq:Tatimi]] |
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[[simple:Tax]] |
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[[sk:Daň]] |
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[[sl:Davek]] |
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[[sr:Порез]] |
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[[sh:Porez]] |
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[[fi:Vero]] |
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[[sv:Skatt]] |
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[[tl:Buwis]] |
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[[ta:வரி]] |
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[[te:పన్ను (ఆర్థిక వ్యవస్థ)]] |
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[[th:ภาษีอากร]] |
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[[tr:Vergi]] |
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[[uk:Податок]] |
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[[ur:مالیات]] |
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[[vi:Thuế]] |
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[[war:Buhís]] |
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[[zh-yue:稅]] |
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[[bat-smg:Muokesnis]] |
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[[zh:稅]] |
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Revision as of 23:02, 9 September 2011
THE GAME