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The Four Types Of Taxes Essay

1678 words - 7 pages

The purpose of this paper is to illustrate the layout of taxation. I will differentiate the types of taxes and the roles that they serve currently. Subsequently, I will explain what equity, efficiency, effectiveness and transparency (EEET) are and show how they apply to taxation as a whole. Lastly, I will conclude how the EEET applies to the four tax types.
The four types of taxes this paper will discuss are income tax, sales tax, property tax, and user fees. Income tax was not permanently established until the 16th Amendment was passed in 1913. Most federal taxes had been previously derived from excise taxes on tobacco and alcohol and other consumer goods. The US Constitution, when written and still continues to, legitimize taxation in the United States through Article I, Section 8, that Congress has the power to lay and collect taxes, duties et al, pay the debts or provide for the common defense and general welfare of the United States (Cornell Law LII). Investopedia defines income tax as ‘a tax government(s) impose on financial income generated by all entities within their jurisdictions (Investopedia, 2014). Businesses and individuals are required to file an income tax return every year to determine if they owe taxes or qualify for a refund. That is determined by measuring the total income one earns to a designated tax rate, calculating one’s taxable income, which are some or all items of income reduced by other adjustments or expenses in that tax year. There are different subcategories of income tax; there is a federal income tax that is set by the federal government, apart from a few states, there is a state income tax that is imposed on their respective residents, as well as the possibility of there being local income tax local governments impose on its citizens. The federal income tax totals up to be the prime source of revenue for the federal government, accounting to nearly 46 percent of all revenue received from tax (National Priorities Project). After the income tax revenue is disbursed into the Treasury, it becomes classified as federal funds—also known as ‘general revenue’—permitting Congress and the president to spend it on funding the government, only after it has been budgeted and appropriated for the upcoming fiscal year.
Sales taxes are imposed on the state level for the majority of consumer goods and some services. Sales taxes are implemented currently in forty-five of the fifty states, including the District of Columbia. State sales tax rates range from 2.9 percent (Colorado) to 7.5 percent (California). Thirty-one states, including Alaska—who has no state sales tax—permit sales tax at the county, municipal, or special district level, where local sales tax rates can vary between .25 percent (Mississippi) to 8.0 percent (Alabama) (Tax Policy Center). Local sales taxes are usually imposed on the same goods and services that are imposed on at the state level. The majority of states additionally apply sales taxes to specific...

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