A tax is any monetary charge or tax levied on an individual by a governmental body in order to finance various public expenses and government spending. A tax evasion or refusal to pay is punishable by legislation. Thus, the concept of income tax is inherent in the nation’s legal system.
Income tax also known as income tax, estate tax, and sales tax are basically taxes assessed on an individual’s salary, profits, and gains by a commercial entity. Progressive taxes also include inheritance tax. The term ‘progressive tax’ does not refer to a progressive taxation system. Rather it refers to a system where the taxation is based on the amount of income over a period of time. In a progressive tax system, a portion of the wages or profit goes to the government and the rest to the individual taxed. Thus, in a progressive tax system, those earning more money over a period of time would owe a higher amount of income tax than those earning less money over that same period.
Some states have progressive taxes, while many have proportional taxes. In proportional taxes, a portion of a wage or profit goes to the state and another portion goes to the taxpayer. The percentage goes up as the earning ability of an individual increases. Thus, in a proportional tax system, the bigger the earning potential of a person, the bigger his share of the tax pie will be. While a flat tax system taxes everyone equally, the progressive tax system Taxes only those earning more than the standard amount.
The basic difference between the two tax systems is that the former taxes only what has been accumulated during a year and the latter taxes only what has been accumulated during a year. Another fundamental difference is that progressive taxation relies solely on the ability to earn income while a proportional taxation relies on assets. Thus, different kinds of assets will yield different kinds of returns under the two tax systems. Examples of assets that yield a higher rate of return under progressive taxation are stocks and bonds.
As compared to the traditional single tax system, which assesses taxes on a basis of earned income, taxpayers may now opt for both progressive and proportional tax systems. Under these systems, the taxpayers can choose which tax system to employ based on their personal requirements and preferences. For instance, some taxpayers might desire a lower rate of return or a zero rate of taxation in exchange for having to shell out a bit more for the privilege of working. On the other hand, some taxpayers might not mind paying a bit more as they think that the extra effort will be worth it in the end.
The rates levied on corporate tax levy and the exemptions that are granted on individual income tax are also different from one state to another. In addition, capital gains levy and sales tax are imposed separately in each state. Levies on corporate tax can amount to a huge chunk of the governments revenues, so it is imperative that the state administer these taxes efficiently. This is why, if you are a business owner, it is always advised that you seek professional assistance from an experienced taxation agency.