Taxes are mandatory financial charges or levies imposed on individuals or corporations by a governmental organization to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax revenues finance government activities, such as building infrastructure, providing public services, and maintaining law and order. Taxes can be levied in two ways: directly or indirectly. A direct tax is levied on individuals and organizations and cannot be shifted to another payer. With a direct tax, such as the individual income tax, rates often increase as the taxpayer’s ability to pay increases, resulting in what is called a progressive tax. Indirect taxes, on the other hand, are levied on goods and services, and the burden of the tax can be shifted to another payer, such as the consumer.
There are different types of taxes, including:
- Income tax: A tax on the money earned by an individual or corporation.
- Corporate tax: A percentage of corporate profits taken as tax by the government to fund federal programs.
- Sales tax: Taxes levied on certain goods and services, which vary by jurisdiction.
- Property tax: Based on the value of land and property assets.
- Tariff: Taxes on imported goods, imposed with the aim of strengthening domestic businesses.
Fees and penalties may not be taxes, but taxes do come under many different names. Other titles for taxes include assessment, duty, tariff, customs, capitation, levy, millage, and impost/imposition.
