Question

1. What, exactly, is the “State Income Tax (SIT)? What are the various tax rates in the SIT? Roughly, at what income level does each rate ‘kick in’? 2. Please define the “sales” tax and give me an example of the sales tax and how it applies in a typical transaction. 3. Please define “special taxes and fees” as we discussed them in class, and give an example of how they impact the typical household. 4. How would you improve any or all of these taxes and fees? 5. Please explain how each one of the five major taxes applies to each one of the five major types of income: that is, how is each type of income taxed? 6. Is the current tax system fair, in your opinion? Why or why not? 7. What would you do to change the current tax system? Why?

Answer 1

1. State Income Tax

State income tax is a direct tax levied by a state on your income. Income is what you earned in or from the state. In your state of residence it may mean all your income everywhere. Like federal tax, state income tax is self-assessed, which means taxpayers file required state tax returns.

• As of 2020, 41 states and Washington, D.C., impose an income tax.
• State tax laws, rates, procedures, and forms vary greatly among the states.
• You must file a state tax return for every tax-levying state in which you earn income, though only the state in which you live can tax all of your income

various tax rates in SIT -

2. SALES TAX

A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer, and passed on to the government.

How Does Sales Tax Work?

In the United States, the sales tax is imposed on retail items. It is paid by the consumer to the retailer, usually as a percentage of the retail cost, who submits the payment to the state.

Sales tax rate and application varies dependant on the state. Sales tax can be applied by counties, cities and regions in addition to the state sales tax.

For example, say a sheep farmer sells wool to a company that manufactures yarn. To avoid paying the sales tax, the yarn maker must obtain a resale certificate from the government saying that it is not the end user. The yarn maker then sells its product on to a garment maker, which must also obtain a resale certificate. Finally, the garment maker sells fuzzy socks to a retail store, which will charge the customer sales tax along with the price of said socks.

3. SPECIAL TAXES AND FEES

A Special Tax is considered a type of tax—not a fee, charge or special assessment. Therefore, the amount of the special tax is not limited to the relative benefit it provides to property owners or taxpayers.

• A special assessment tax is a local tax in addition to property taxes that is levied on homeowners to fund a specific project.
• The assessment is levied for a pre-set number of years and then is discontinued.
• Prospective homebuyers can research special assessments on a property at the county assessor's office.

Special assessments are charges that are not based on the taxable value of your home. Special assessments can appear on your property tax statements with a millage rate of 0.0000 or no millage rate at all.

Special assessment districts may be created because the regular property taxes collected are not sufficient to fully fund a municipality. For example, if the population of a small town has declined dramatically, a special assessment tax may be necessary to continue to operate schools, the police department, or a library.

Special assessments more typically are used for the extraordinary expense of a project that benefits the community. For example, a town might levy a special assessment tax to build a public recreation center or a park. The tax is intended to last for a set number of years. Once the project has been paid for, the tax is discontinued.

4, 5 Distinctions Between Taxes and Fees ( by this we can easily find what is best for us)

Is there a difference between a tax and a fee? As a general rule of thumb, taxes are collected by governments at all levels and go into a general fund used for any legitimate government expense. Your taxes may pay the salary of a teacher, police officer or bureaucrat. They may help pave a road or build a school. They may finance the running of the local sewage-treatment plant.

Fees, on the other hand, are usually more specific. That is, a fee is assessed for a particular service, and the money collected is generally earmarked for that service. The fee that you pay for, say, inspecting your car every other year probably goes directly to cover the costs, in whole or part, of running the inspection station.

Types of Taxes and Fees

You are probably familiar with major taxes, such as income tax and sales tax. Property taxes are also a significant source of government revenue, especially at the local level. Dig a little deeper into government operations, and there is an astounding variety of taxes and fees that are assessed by local and federal government agencies.

The State of Texas, for example, lists almost 30 types of taxes and fees, from a 9-1-1 fee assessed on phone bills to a coin-operated machine tax, and even something known as a sexually oriented business fee.

Taxes and fees are not the only mechanisms governments use to dip into your pockets. Two other categories of note are:

Tolls: These are collected at the point of use. Tolls are common on America’s roads as a means of collecting revenue that generally goes toward highway maintenance funds. The simple toll systems of the past are being augmented by more complex set-ups that may charge more for using an express lane, or raise tolls during periods of “congestion.” “Congestion pricing” may also be used as a means of discouraging heavy traffic.

Fines: From littering and speeding to failing to file your taxes on time, governments also impose fines as a means of discouraging undesirable behaviors. Technological developments like radar guns and traffic cameras have made some types of fines more ubiquitous, especially for drivers. For some towns, fines are a major source of revenue, raising concerns about the overall fairness of the method of assessment and the impact on local communities.

6,7 ABOUT THE TAX SYSTEM

if we see a survey from institute for fiscal studies

The Experiment

We recently ran a straw poll to demonstrate the power of information. We asked a simple question: Broadly, do you think the UK tax system is fair? In many ways this is a silly question; so broad that it’s hard to know what use the results could have. But before answering participants were randomised into one of three groups

Group 1 were just given the question.

Group 2 (the ‘rich pay a lot’ group) also received these two true statistics:

• The point at which income tax starts to be paid has increased in recent years. 4 in 10 adults now pay no income tax.
• The income tax system is top-heavy. The top 10% of income taxpayers pay 60% of all income tax.

Group 3 (the ‘rich don’t pay a lot’ group) also received these two true statistics:

• The richest 10% of income taxpayers earn more income than the entire bottom 50%.
• Someone earning £45,000 faces the same income tax on an extra £1 of earnings as someone earning £145,000.

The Results

The results from this poll were stark. Before any information, 51% of respondents said that the tax system was unfair because the rich paid too little. In the ‘rich pay a lot group’, the proportion saying the system is unfair because the rich pay too little dropped to 33%. In the ‘rich don’t pay a lot group’, this proportion jumped to 72%. This means that about a fifth of people had their answers changed by two (true) statistics. Comparing groups two and three shows that small amount of information led to a doubling of the proportion of people who thought the system unfair.

Information also changed the proportion of people who thought the system was fair, from 16% before any information, to 25% in the ‘rich pay a lot’ group and to 8% in the ‘rich don’t pay a lot’ group. Proportionately, these are even bigger changes.