1. Progressive tax- it taxes an increasing proportion of income as income rises. Thus, as income increases, the tax rate increases, and as income decreases tax rate decreases. This means that the rise in tax liability is more than the rise in income. Payroll taxes are taxes imposed on employers or employees and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories deductions from an employee’s wages and taxes paid by the employer based on the employee’s wages. MTR is part of a progressive tax system, which applies different tax rates to different levels of income. As income rises, it is taxed at a higher rate (according to the bracket it falls in). 2. Proportional tax- it is one of the tax rates that remain constant, even if income rises. Whatever the level of income, the rate of tax remains unchanged. Taxes that vary in direct proportion to the increase or decrease in income is called proportional tax. For example, imagine you live in a state with a flat income tax of 15%. Each taxpayer will pay 15% of his or her taxable income. Since everyone is paying a proportional amount of their income, this is a proportional tax. 3. Regressive tax- extracts a declining proportion of income as income rises. In the case of regressive taxation, the tax rate declines as income rises. A regressive tax is just the opposite of a progressive tax. The higher your income goes above that limit, the lower the average rate that you pay. 4. Digressive tax- it is partly progressive since the tax rate increases as income increases, and partly proportional because the tax rate remains unchanged even if income increases. Thus, the Digressive tax is an admixture of progressive and proportional tax. Taxes on income and earnings • Income tax- a percentage of income • Corporation tax- a percentage of a firm’s profit • Sales tax/VAT- an indirect tax on the sale of goods • Excise duties- taxes on alcohol, tobacco, petrol. • Environmental taxes- taxes on carbon, airports, etc. • Stamp duty- a tax on buying a house or shares • Tariff- this is a charge levied on the import of particular goods • Inheritance tax- a tax levied on the estate of a deceased person • Wealth tax- a tax levied on wealth, rather than income • Capital gains tax- a tax levied on an increase in the value of assets/wealth • Poll tax- a tax on individuals. Introduced in the UK as the “community charge” • Windfall taxes- these are a type of corporation tax levied on companies making excess profit • Council taxes- taxes collected by local government, could be a tax on property or local sales/income tax DIRECT AND INDIRECT TAXES • A Direct Tax is a tax that a person or company pays directly. For example- income tax is taken out of your salary. • An indirect tax is paid by a third party. For example, when you buy a TV, there is a VAT charge which is included in the price, the consumer does not pay, but the firm who sells the good is responsible for paying the tax to the government on your behalf. Ad Valorem Tax- it is a tax based on the assessed value of an item, such as real estate or personal property. The most common ad valorem taxes are property taxes levied on real estate. Specific Tax- A specific excise tax is levied based on quantity (e.g. a fixed amount per cigarette or weight of tobacco), while an ad valorem excise is levied based on value (e.g. a percentage of the factory price or retail price).
