Question

What are the various types of taxes that are levied by the federal government on individuals and businesses? What types of taxes are imposed by states and local governments on individuals and businesses? How are they similar and how do they differ? Does the federal government impose taxes for the same reasons as states and local governments?

Answer 1

Solution: Tax is a financial charge which is levied by the different governments on individuals as well as business with no reciprocal benefits.

Q1: What are the various types of taxes that are levied by the federal government on individuals and businesses?

Solution:

(1) Personal income tax: It is one of the best examples of taxes which is charged by the federal government on individuals and it is also one of the most prime sources of federal government revenue for growth and development. Personal income taxes are a form of direct tax which is paid by the taxpayer on his or her direct income.

(2) Corporate tax: It is also one of the forms of direct taxes which is levied by the federal government on the profits earned by the company after allowing certain deductions and exemptions.

(3) Excise Tax: Excise tax is charged in the case of manufacturing of finished goods and levied at the time of removal of goods from the factory. It is also charged by the federal government.

Q2: What types of taxes are imposed by states and local governments on individuals and business?

Solution:

(1) Property tax: It is a tax which is charged by the state government on the income of both commercial and residential property.

(2) Sales tax: Sales tax is also one of the popular forms of taxes which is charged on the sales of goods and charged by the state government.

Q3: How are they similar and how do they differ?

Solution: They are similar on the grounds of taxpayers. Taxpayers base are the same i.e. individual and business payers. They are also similar on the basis of nature of taxes i.e. some are direct taxes and some are indirect taxes.

They are different on the basis of charge and jurisdiction. in other words, they are different on the basis of charge by the charging authority i.e. federal government and state government.

Q4: Does the federal government impose taxes for the same reasons as states and local governments?

Solution: Yes, the federal government impose taxes for the same reason as state and local government because the prime reason to impose the tax is revenue collection which is used for nation's growth and development. Both federal and state government needs revenue to incur public expenditure at micro as well as macro level.