Taxation principles

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Taxation principles provide students with the background behind tax laws, including how taxes are collected, enforced, and reinvested back into the economy.

Tax Jurisdiction: This refers to the authority of a government to impose taxes on individuals and businesses within its territory.
Taxation Types: This includes the different types of taxes that exist such as income tax, sales tax, property tax, and excise tax. Each of these taxes has its unique set of rules and regulations.
Taxable Income: This refers to the income that is subject to taxation. It includes all the earnings that a person receives from various sources, including salaries, wages, dividends, and interest.
Tax Deductions: These are the expenses that a taxpayer can deduct from their taxable income. For example, charitable donations, medical expenses, and business expenses are all tax-deductible.
Tax Credits: These are the amounts that reduce the tax liability of a taxpayer. For example, a person can claim a tax credit for adopting a child, purchasing an energy-efficient vehicle, or installing solar panels.
Tax Planning: This refers to the process of organizing a person's financial affairs in a way that minimizes their tax liability. It involves understanding the tax laws and making strategic financial decisions.
Tax Compliance: This refers to the requirement that taxpayers must follow the rules and regulations set forth by the government. It includes filing tax returns on time, paying taxes owed, and keeping accurate records.
Tax Treaties: These are agreements between two or more countries that determine how taxes are to be applied to cross-border transactions. They help to prevent double taxation and establish a framework for international tax cooperation.
Tax Evasion: This refers to the illegal act of not paying taxes owed. Tax evasion can occur through various means, including hiding income, underreporting income, and claiming false deductions.
Tax Audit: This refers to the examination of a taxpayer's financial records by the government to ensure compliance with tax laws. The audit process may include interviews, document reviews, and onsite inspections.
Progressive Taxation: This principle is based on the idea that high-income earners should pay a higher percentage of their income in taxes than low-income earners. The tax rate increases as income increases.
Regressive Taxation: This principle is based on the idea that low-income earners should pay a higher percentage of their income in taxes than high-income earners. The tax rate decreases as income increases.
Proportional Taxation: This principle is based on the concept of a flat tax rate. All taxpayers, regardless of income level, are taxed at the same rate.
Direct Taxation: This principle is based on collecting taxes directly from the taxpayers. Personal income tax, corporate income tax, and property tax are examples of direct taxes.
Indirect Taxation: This principle is based on collecting taxes indirectly from the taxpayers, such as sales tax, excise tax, or tariffs.
Capital Gains Tax: This principle is based on the gains made on the sale of a capital asset, such as a stock or real estate property.
Estate Tax: This principle is based on the transfer of property from one individual to another after death.
Inheritance Tax: This principle is based on the heirs’ inheritance amount or will amount, which is taxed.
Value-Added Tax: This principle is based on the value added to a product or service at each stage of production or distribution.
Pigouvian Tax: This principle is based on taxing activities that have adverse effects on the environment, such as carbon emissions or water pollution.
Sin Tax: This principle is based on taxing activities that are considered socially harmful, such as tobacco or alcohol sales.
Tariffs: This principle is based on imposing taxes on imported goods.
Customs Duty: This principle is based on taxing the import or export of goods between countries.
Toll Tax: This principle is based on imposing taxes on road users or transportation systems.
Corporate tax: This principle is based on taxing the profits earned by corporations.
Wealth Tax: This principle is based on taxing the wealth of an individual, rather than their income.
Payroll Tax: This principle is based on the percentage of income that is withheld from an employee's pay and paid to the government as a tax.
Quote: "The United States of America has separate federal, state, and local governments with taxes imposed at each of these levels."
Quote: "Taxes are levied on income, payroll, property, sales, capital gains, dividends, imports, estates and gifts, as well as various fees."
Quote: "In 2020, taxes collected by federal, state, and local governments amounted to 25.5% of GDP, below the OECD average of 33.5% of GDP."
Quote: "U.S. tax and transfer policies are progressive and therefore reduce effective income inequality, as rates of tax generally increase as taxable income increases."
Quote: "The lowest earning workers, especially those with dependents, pay no income taxes and may actually receive a small subsidy from the federal government."
Quote: "Taxes fall much more heavily on labor income than on capital income."
Quote: "Citizens and residents are taxed on worldwide income and allowed a credit for foreign taxes."
Quote: "Individuals are permitted to reduce taxable income by personal allowances and certain non-business expenses, including home mortgage interest, state and local taxes, charitable contributions, and medical and certain other expenses incurred above certain percentages of income."
Quote: "Federal marginal tax rates vary from 10% to 37% of taxable income."
Quote: "The 2017 tax law imposed a $10,000 limit on the state and local tax ("SALT") deduction, which raised the effective tax rate on medium and high earners in high tax states."
Quote: "The United States is one of two countries in the world that taxes its non-resident citizens on worldwide income, in the same manner and rates as residents."
Quote: "The foreign earned income exclusion eliminates U.S. taxes on the first $120,000 of annual foreign source earned income of U.S. citizens and certain U.S. residents living and working abroad."
Quote: "Payroll taxes are imposed by the federal and all state governments. These include Social Security and Medicare taxes imposed on both employers and employees."
Quote: "There is an additional Medicare tax of 0.9% on wages above $200,000."
Quote: "Property taxes are imposed by most local governments and many special purpose authorities based on the fair market value of property."
Quote: "Sales taxes are imposed by most states and some localities on the price at retail sale of many goods and some services."
Quote: "The United States imposes tariffs or customs duties on the import of many types of goods from many jurisdictions."
Quote: "Estate and gift taxes are imposed by the federal and some state governments on the transfer of property inheritance, by will, or by lifetime donation."
Quote: "Similar to federal income taxes, federal estate and gift taxes are imposed on worldwide property of citizens and residents and allow a credit for foreign taxes."
Quote: "Payroll taxes have dramatically increased as a share of federal revenue since the 1950s, while corporate income taxes have fallen as a share of revenue."