Transcript Taxes

TAXES
“You don’t pay taxes–they take taxes.”–Chris Rock
WHAT ARE TAXES?
• A tax is a payment of money by people or businesses to
a local (Warren County/Front Royal), state (Virginia), or
national (United States) government.
• Everyone (citizen or not) has to pay them.
• Taxes are how governments generate revenue to pay
their bills (public services-water, sewage, roads,
employees-police, teachers, etc.)
WHAT ARE TAX STRUCTURES?
• A tax structure is the way taxes are imposed on the
economy.
• The tax structure of an economy depends on its tax
base, tax rate, and how the tax rate varies.
• A tax structure is formed in three ways:
– Proportional tax
– Progressive tax
– Regressive tax
TAX BASE:
the amount of money (or value) to which a tax rate is applied.
TAX RATE:
the percentage of the tax base that must be paid in taxes.
EXAMPLE:
You buy a $20.00 t-shirt from a store in Front Royal. You pay the
cashier $21.06.
$20.00 is the tax base
$1.06 (5.3% of the $20.00) is the tax rate
HOW DO TAX RATES VARY:
Proportional Taxes: often called a flat tax, it will NOT
change regardless of the amount of the tax base.
A sales tax is a type of proportional tax since all
consumers, regardless of earnings, are required to
pay the same fixed rate.
HOW DO TAX RATES VARY:
Progressive Taxes: the tax
rate will change as the
amount of the tax base
changes.
Income taxes are an
example of a progressive tax.
The more money a worker
earns the higher percentage
of taxes s/he will have to pay
for that earned income.
HOW DO TAX RATES VARY:
Regressive Tax: The percentage of tax that person pays in
comparison to his/her income.
EXAMPLE:
Suppose Mary and Joe each buy a computer for $1000.00
and pay 5.3% sales tax ($53.00). Mary earns $4000.00 and
Joe earns $3000.00. The percentage of Mary’s income
that was paid in sales tax was 1.3% and Joe’s was 1.7%.
Thus the regressive nature of the tax says that the more
money that you earn, the less impact the tax has on your
spending power.
WHAT ARE DIFFERENT TYPES OF TAXES
Basically there are three types of taxes:
• taxes on income,
• taxes on property, and
• taxes on goods and services (sales).
WHO CAN LEVY (CHARGE) INCOME TAXES?
• Federal government
• State government
• Local (city or county) government
Two kinds of INCOME TAXES:
– Personal
– Corporate
WHO CAN LEVY PROPERTY TAXES?
• State (business property)
• Local (business and personal)
– Cars, boats
– Real estate
WHO CAN LEVY SALES TAXES?
• State
– Virginia charges 4.3%
• Local
– Warren County/Front Royal charges an additional 1%.
– Other counties in Northern Virginia charge ANOTHER 0.7% (Cities
of Alexandria, Fairfax, Falls Church, Manassas and Manassas
Park; and in the Counties of Arlington, Fairfax, Loudoun and
Prince William.)