Monday, September 13, 2004

Types of Taxes

A poll tax is a tax paid directly by an individual to a government. The earliest tax 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 infamous for causing hardship for individuals who handle their affairs poorly. In fact, they were forbidden by the U.S. constitution as a historic abuse to be prevented. (This protection had to be changed in order to enable income taxes.) Poll taxes are difficult to cheat. A poll tax may also be called a per capita tax or a capitation.

Indirect taxes are hidden taxes. Value Added Taxes, when they do not appear on the sales receipt are a form of indirect tax. Taxes are not always paid in cash. For example, the labor and expense of complying with tax laws and rules are also examples of hidden taxes.

An "Ad Valorem" tax is a governmental exaction in an amount determined with reference to 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). Ad valorem taxes, income taxes, and per capita taxes are the major categories of taxes, although the first two are the most common.

An "Excise Tax" is a type of ad valorem tax that is imposed at the time of a purchase or sale transaction (sales tax or value added tax (VAT)) or in connection with importation across a political border (tariffs). The tax base is the purchase price or the declared value, however, there are many variations to this basic rule. For example, the sales tax on used automobile purchases in the United States is determined with reference to a published list of prices. The purchase price may be disregarded.

Sales taxes on retail transactions may be applied as either direct or indirect taxes. Sales taxes discourage retail sales. The question of whether sales taxes are generally progressive or regressive is a subject of much current debate. It is common to exempt food, heating and lighting costs from sales tax to avoid regressive taxation on the poor. Sales tax directly discourages formation of efficient production because it taxes the purchase of factory equipment. The classic way of cheating on sales tax is to ask a merchant for a cash discount. The merchant pockets the cash and writes off the merchandise to shrinkage and the state fails to get the tax.

An import or export tariff is a charge for the movement of goods through a political border.

Excise taxes discourage trade. Excises pay government to maintain a navy or border police, and also protect domestic industry to some extent. The classic cheat is smuggling, or a war to interfere with competing countries' merchants.

A value added tax (also called a goods and services tax) applies the equivalent of a sales tax to every operation that creates value. A VAT was historically used when a sales tax or excise tax was uncollectable. For example, a 30% sales tax is so often cheated that most of the retail economy will go off the books. VAT distributes such a tax in small enough increments that it becomes more trouble to cheat than to pay the tax. However, a VAT punishes production, which is considered a bad effect.

An inheritance tax is imposed in many countries on the estates of the deceased. Some believe that inheritance taxes do not have any harmful effect on the economy and may even be beneficial as they encourage consumer spending by the elderly. However, they are also believed to discourage productivity and to disrupt the continuity of many family-owned businesses.

A fuel excise is often used to pay for public transportation, especially roads and bridges and for the protection of the environment.

An alcohol excise is used to discourage alcohol consumption and to pay for the costs of treating illness caused by alcohol abuse.

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.

A blank media tax is a tax on recordable media such as CD-Rs. The proceeds are typically allocated to copyright holders.