Taxes

Understanding the Basic Concepts of Taxes

Taxes are basically fees levied on individuals and businesses by the government or any governing body that provides the same function. It’s a fee paid by businesses and individuals based on their earnings, financial situation and the properties they own. Through centuries, the laws on taxation were expanded as people improve their way of life and explore other means of earning and living. Taxes are always considered in any business decision because it is a fee that must be paid to the government as this is required by law. Even though there would be complaints that the taxes are basically fees without any return, it is required by law. And the government or the relevant institution is bound to use taxes for the good of the community.

History of Taxation

Taxation has existed for thousands of years. Even the Ancient Egypt followed a certain type of taxation where payment is made not necessarily by valuable metals (gold) or crops. There are civilizations like the Ancient Egypt that considers taxation through work. Instead of paying, some individuals opted to pay by working on various projects commissioned by the government.

As civilization progresses to various activities, taxation has also expanded to the said activities. A good example is the imposition of war taxes during the 18th century in Europe. During those times, countries like England are imposing this type of taxes as they are continuously at war or at least preparing for war with other nearby countries. Generating funding for war is levied on taxes.

During the 20th century, taxes on war still exist but after WWII, the use of taxes was slowly expanded. Although indirectly; the use of taxes in richer countries are used to extend their assistance to poorer countries. This is especially true during environmental disasters such as flooding and earthquakes.

Types of Taxes

Taxes are generally classified into two based on how they are paid: directly and indirectly. The first form of tax is directly paid by individuals and businesses. They calculate how much they earn and they own and use the present tax calculation provided by the government. Depending on each country, payment could be done by visiting the government office in charge of tax collection or simply mailing the payment. Because of online connectivity, some are now able to pay for their taxes online which mean paying taxes is faster and easier.

The second form of tax is indirect tax. This type of tax is often extracted by another individual or business in behalf of the government. This is often found in business setting. For example, whenever a person pays for night’s stay in hotel room, he or she is not only paying for the services provided. The guest is also paying for taxes depending on the rate provided by the laws of the land. The tax is not directly paid to the government but they are given to the business who gives the tax to the government at the appointed time.

Calculating Taxes

Taxes are determined based on the earnings of an individual. They are often placed on a “tax bracket” so that their payment would be properly determined. The taxes that should be paid are not predetermined value. A tax bracket simply refers to the fact that the group that falls on a specific tax bracket would be using a different formula in calculating taxes.

The formula in taxes is actually very simple. Certain percentage is applied to the earnings and this would constitute the total amount that should be paid. For example, a country’s income tax is at 6%. This means a person has to give 6% of his or her earnings to the government as taxes. When a person’s earnings are at $100,000 a month, the tax that should be paid would be $6,000.

Tax bracketing is often determined by the annual earnings or net worth of an individual. More often than not, those who are earning more or in a higher tax bracket have higher tax percentage compared to those who are in lower bracket. This type of taxation allows the government to solicit funds for various projects from those in higher tax bracket while those who are not earning enough will not be burdened too much on taxation.

Purpose of Taxes

Taxes are used in four Rs:

Representation – the taxes paid by individuals and businesses are used as salaries for congressmen, mayors, governors and other public officials.
Revenue – taxes are used to build schools and fund various government projects.
Redistribution – the taxes extracted by the government are also used to aid poor communities.
Repricing – taxes can also be used to change the prices of certain products. For example, a government could increase the pricing of cigarettes by increased in their taxes. This is often done to discourage individuals from smoking which is seen as a health hazard.

Tax Evasion

Non-payment of taxes is punishable by law. Businesses and individuals have to pay their taxes on time or else they will end up paying more because of the fines for late taxes. Aside from paying on time, taxpayers are also required to pay the right amount of taxes. Tax evasion is not only on refusing to pay taxes but also in refusing to pay the correct amount. Sanctions for non-payment of taxes depend on the law enforced by the government but the common norm is jail time for individuals and closure for businesses including revocation of their license to operate.

Taxes Quotes (6)

It was also understood that taxes reduced the available pool of savings on the island and limited the supply of investment capital. But most island residents agreed that the commercial benefits that flowed from increased island security, fewer canoe wrecks, and a court system that enforced contracts and disputes, more than compensated for the lost savings.
— Peter Schiff; How an Economy Grows and Why It Crashes

It is estimated that for every $1,000 in taxes you and I pay, less than $200 comes back as a benefit to us.
— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

Taxation, however, is often unpopular, and, in less temperate days, frequently precipitated revolutions. The emergence of money, while a boon to the human race, also opened a more subtle route for governmental expropriation of resources. On the free market, money can be acquired by producing and selling goods and services that people want, or by mining (a business no more profitable, in the long run, than any other). But if government can find ways to engage in counterfeiting—the creation of new money out of thin air—it can quickly produce its own money without taking the trouble to sell services or mine gold. It can then appropriate resources slyly and almost unnoticed, without rousing the hostility touched off by taxation. In fact, counterfeiting can create in its very victims the blissful illusion of unparalleled prosperity.
— Murray Rothbard; What Has Government Done to Our Money?

Plausible as this might sound, tax rates are not tax revenues. The two things have moved in opposite directions too many times, over too many years, for us to take these clever talking points at face value.

This administration is not the first one in which a reduction in tax rates has been followed by an increase in tax revenues. The same thing happened during the Reagan administration, the Kennedy administration and the Coolidge administration.

Tax rates and tax revenues have moved in opposite directions many times, not only at the federal level, but also at state and local levels, as well as in foreign countries.

How many times does it have to happen before people stop equating tax rates with tax revenues? Do the tax-and-spend politicians and their media supporters not know any better — or are they counting on the rest of us not knowing any better?
— Thomas Sowell; Dismantling America

As the United States continues to print trillions of dollars, our kids and grandkids will pay for this mess with rising taxes. Taxes often punish producers and reward the crooked, lazy, or incompetent.
— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

There is a growing mood in this country to "get" the rich. This sentiment is embodied in the action of Congressman Jerry McNerney (D-CA), asking for a 90 percent tax rate on wealthy people. Yet the mobs are out to punish the working rich—those who pay taxes, create jobs, and make charitable donations. The real rich, those who influence the politicians and the Federal Reserve, are untouched.
— Robert Kiyosaki; Rich Dad's Conspiracy of The Rich

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