The term tax is an important word in the United States federal system and elsewhere in the world. A tax is an obligation or a specific monetary charge levied on a citizen by a governmental agency in order to finance various common, public needs and expenditures. Evasion of or refusal to payment of taxes, and related crimes, are punishable by criminal law. In practice, taxation has meant many different things to many different people. For example, to a large extent, it has meant a proportion of wealth accumulated by the individuals in a society.
In some parts of the world, taxation means a regressive system in which those people who have a lot of money to accumulate a larger amount of wealth and those who do not have as much income are left with less. In such a case, taxes become a regressive system even if they fall only on the richer portion of the population. This happens because when people have more income than they need, they tend to save that income, and when they have less income than they need, they tend to spend the income they have to their advantage. Such a situation may occur naturally or may be aggravated by the government by way of either directly or indirectly, taxing the rich more than the poor, imposing high tariffs on goods and services, and providing higher education to the poor so that they have more earning potential.
On the other hand, some countries have progressive tax systems. In such a case, both the rich and the poor have some asset value, although the poor often have very low real estate values and own very few stocks and other property. This makes them vulnerable to high inflation. They still feel that they are paying for their performance by way of high tariffs and regressive tax systems.
In most developed countries, progressive taxation means that a small percentage of the income of the person or the organization is taken as tax. The organization’s or the individual’s annual income is then added up and its share is determined. If that percentage is greater than a set threshold, a portion of the income is charged as taxes. Sales tax, capital gains tax, and other types of taxes are added on to this amount in order to raise the revenue that will be used for the purposes indicated by the government.
Sales tax, regressive taxes, and property taxes all have different purposes. For example, sales tax is meant to raise enough money to enable the state and national government run their services properly. The sales tax in most states is based on the average price of items purchased by a customer within a stipulated period of time. On the other hand, regressive taxes are designed to restrict opportunities for the rich to buy large properties in areas where the prices are too high. Property taxes are again regressive in nature, and their imposition has often been resorted to by the government in times of financial distress to raise the necessary revenue.
Income and progressive tax systems are often used to determine the amount of taxes that a person or an organization will pay. The difference between the two is the progressive tax system takes into account the amount of earnings or wages that a person or his/her spouse has made over the course of a year. This amount is then multiplied with the amount of deductions allowed under the income tax laws. In the case of individuals, the deductions include the personal exemption and social security benefits. Sales tax only takes into account the sales price of items sold, and is applied according to a certain proportional scale. This proportional scale can either be flat or graduated, and the higher the sales price the higher the percentage that will be charged in sales tax.