In: Economics
Provide 2 paragraphs to answer the following question.
1. What are some of the major different types of taxes? How are they levied and who pays each tax? What is meant by a tax’s progressivity? How is this determined?
Major different types of taxes are as follows
Property Tax
Property taxes are taxes you pay on homes, land or commercial real estate. If you’re deciding whether you can afford to buy a home, you should take property taxes into account. Unlike a mortgage, property tax payments don’t amortize. You have to keep paying them for as long as you live in a home – unless you qualify for property tax exemptions for seniors, veterans or disabled residents.
Capital Gains Taxes
Capital gains taxes apply to investment income after an investment is sold and a capital gain is realized. Because so many Americans don’t invest at all, they don’t pay capital gains taxes. There are also taxes on dividends and interests stemming from simple interest from a bank account or dividends and earnings from investments.
Inheritance/Estate Taxes
Estate and inheritance taxes are paid after someone dies. An estate tax is paid from the net worth of the deceased. It’s a tax on the privilege of passing on assets to heirs. There is a federal estate tax, and some states levy their own estate taxes as well. Inheritance taxes don’t exist at the federal level and are only law in a handful of states. They’re taxes on the privilege of inheriting assets, and so are paid by the heir, not the estate of the deceased.
Payroll Taxes
If you take your annual salary and divide it by the number of times you get paid each year, chances are that number is higher than your actual paycheck. One reason could be that your healthcare premiums or 401(k) contributions are deducted from your paycheck. Another reason is payroll taxes. These taxes cover your contributions to Medicare, Social Security, disability and survivor benefits and to federal unemployment benefits. You’ll also have federal (and maybe state and local) income taxes withheld from your paycheck. You can learn all about payroll taxes here.
Income Taxes
Income taxes do what the name implies. They tax the income you earn. Federal income taxes are both progressive and marginal. Marginal means that there are different tax rates for different income brackets. The top earners pay a high tax rate, but only on the amount of money they have in that top bracket.
Now talking about progressivity of taxes
A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer's ability to pay. That means it takes a larger percentage from high-income earners than it does from low-income individuals.
This is a tax that is higher for taxpayers with more money. In a progressive tax system like the U.S. federal income tax, wealthy individuals pay tax at a higher rate than less wealthy individuals. This is why wealthy Americans are taxed more than middle-class Americans and middle-class Americans are taxed at a higher rate than working-class Americans.