Taxes are the mandatory amount of money from the income of an individual towards state`s revenue. It is the droit of the state that everyone should contribute in the prosperity of his country by paying taxes according to the laws of taxation of the state. As the state is getting taxes from the taxpayers so it is the responsibility of the state government to take care of the basic needs (i.e. electricity provision, construction and maintenance of roads, hospitals and schools etc.), of the folks living in the state. For the relief of the people in taxation, the USA government introduced some debt relief programs.
3 Different Types of Taxation System used in USA:
There are three basic taxation systems used in USA by the Government.
- Progressive Taxes System.
- Regressive Taxes System.
- ProportionalTaxes System.
The brief detail of each taxation system is given below
Progressive Taxes System:
This is the type of taxes system which is directly related to the income of the taxpayer. In most cases income taxes fall into progressive taxes system. As the word progressive indicates that if the income of an individual increases the amount of tax to be paid also increases with it, the tax rate will progressively increase with respect to income of the individual. So this system of taxes will effect on higher income class and it has less effect on relatively lower income class.
The federal income tax of US is based on this system. In 2021, An individual who have monthly income is less than $9,950 and a married couple who’s monthly income is less than $19,900 will have to pay 10% of their income as a tax, and this will increase according to their increase of income.
Regressive Taxes System:
This taxes system is totally opposite to that of progressive taxes system. So regressive taxes system will effect more on lower income class.
In this system property taxes, sales taxes and the taxes on the items which can be consumed like gasoline, petrol and natural gas etc. are included in it.
So as the government increase the price of this tax it will effect more to lower class families because they have to pay a higher portion of their income as compared to higher income families which will pay less portion of their income as a tax.
This is the types of taxes system in which an individual have to pay tax in proportion to the amount he have at that time. This system of taxes is also known as flat tax system. For example if anyone is living in a state which have a flat tax of 6% so he will have to pay 6% of his taxable income. There are nine states in USA which uses flat taxes system which are given below
- North Carolina
It is believed that proportional taxes system triggers the economy to increase because people want to do more work and they know that there is no tax increase on the increase of their income. People also think that to do business and make investments is very easy under this system of taxation.
Progressive taxation system is very beneficial because its effect on the taxpayer is according to their level of income. As the income of a taxpayer will increase, the tax rate will also increases, so he will not willing to earn more because tax will also increase with that. While in regressive taxation as the income increases so the burden of taxes will decreases, so people like to do more work and the economy of that state improves. In proportional taxation people want to do more work and business because they know that increase of income will not effect on tax rate so economy of the state will boost up.