The provision of services to its citizens by each nation is done through the accumulation of resources from everyone. These resources are collected by means of taxes. Taxes assist in the management of the governments’ priorities and other challenges that could come in the form of disasters or future plans of construction of infrastructure. The collection of taxes comes with its own set of challenges as legal and physical challenges hinder total collection. A desirable environment that each nation would want is where everyone contributes and no one evades taxation. The main aim of taxes is to offer basic services (Mikesell, 2007). These services or function by the Government include expenditures on wars, offering security to its citizens through law enforcement, development of economic infrastructures such as roads and legal tender and also the day to day running of Government operations and payment of Government staff.
There are different kinds of taxes and their rates also vary from nation to nation. The rates vary so as to enable the distribution of the tax burden among various classes of individuals or businesses. In the past, most of the top hierarchies such as monarchies were supported by the taxes collected from the poor. These days, there are also social security funds and regimes which are used to support those less fortunate in our societies. Such people include the disabled, the poor and retired folks. The taxes to support them are collected from the people who are working. The Government is accountable on how it spends this income and documentations are often used to support the expenditure (Mikesell, 2007).
Through the culture of accountability, Governments are forced to become efficient. Expenditure is based on a list of priorities, hence forcing the Government to be effective. In every nation resources are always limited and this guarantees that projects and other services with high priority are attended to first. Taxes are also used to influence economic and social activities. For example if the state wants to attract foreign investments, it can lower or even abolish some form of taxes within a certain area in order to enable the economic growth of the area. Giving tax breaks to certain businesses ensures that employment of citizens is ensured.
Income tax is charged on the income of any individual in a country. Also incomes from businesses are levied. There are various forms of tax regimes that exist and all vary in terms of the degree or individuals that are affected. Deduction to income tax is imposed according to the status of the individuals. A good example of this is how married couples enjoy some form of deduction on the income tax levied on them. These deductions assist in the improving both the vertical and horizontal equity. These deductions are pegged on the circumstances of the individual. The subtractions at times serve to encourage the purchase of something e.g. house or cars by the public or could also be used to reduce the cost of special expenses such as medical bills and property prices. Individual or personal taxes are collected in the form of pay as you earn, whereby a percentage of the individual’s tax is collected at the end of the financial year (Mikesell, 2007). Companies are levied corporate tax but the difference between corporate and individual taxes lies on the difference in the expenses and write-offs that are imposed on the companies. There are advantages and disadvantages related to Income tax. Some of the advantages are that income tax can be adjusted in accordance to the size of the household and revenues that are levied from the working individuals is charged at socially accepted rates which seldom change. This offers people the chance to plan for the future.
Disadvantages of income tax are that it is not transparent enough and that it is expensive to administer. This is because of the large number of working people in any country. Long-term effects of income tax come in the form that the majority of the populations are not able to save for the future as the monies that they are left with after taxation is too little. Penalization and benefits vary depending on the different classes of individuals. The other disadvantage of income tax is that the rate of income tax charged is progressive instead of being proportional.
This form of tax is the main contributor for revenues collected by local governments all around the World. In this form of taxation, the proprietor of the property is obliged to pay for the price of the property being taxed. Local governments in most cases are municipalities. The property taxed falls under three categories, Land (Section where real estate is located), Improvements to land and taxation of personal property. This personal property comes in the form of movable manmade objects. The government or taxing authority has to first conduct an appraisal of the property before determining the rate of tax that will be levied. This rate varies from one country to the next or from different states.
Within the realms of property tax, there exist two distinctive forms of taxation: one (ad valorem tax) whose rate is calculated according to the market value of the property and the other is special assessment tax or non ad valorem tax which banks on a benefit for it to be levied. The calculation of property rate is complex as it requires the local government to multiply the appraised value of the property by a mill rate and is divided by one thousand. The mill rate is defined as the amount of tax charged per thousand currency units of property value. Personal property tax in the United States is levied on vehicles, works of art, business inventory and assets that are intangible such as stocks and bonds.
Advantages of Property are: that it is stable. This means that it is not subject to the effects of the stock market or economy. It cuts across all the sectors of the economy such as residential property, agricultural, forestry, commercial and industrial property. The fact that the tax is secured by the property itself, makes it difficult to evade. Cost of administration cost is also low.
Disadvantages of property tax are that it tends to be paid in lump some, hence making it costly to pay. Although in most places, the tax is charged on a quarterly basis. Taxes charged on the property does not equate to the level or services offered by the government. Property tax has always been the most unpopular to taxpayers and economists. This has led to tax rebellions as tax payers become non compliant on paying the tax. Appraisal of the property is perceived to be unfair as the rates charged vary from locality but the property is the same.
This tax is levied on the price of goods and services that have been purchased. It is a tax on the consumption. This tax is displayed as a percentage f the price of the good or service being sold. In some states or places such as Hawaii, sales tax is charged to businesses rather than on the consumers. Sales tax is collected by the business person or merchant and remitted to the state. This form of tax is stated separately and only consumers are levied. Resellers or distributors are not charged unless if they have used the goods. They should also have a certificate in order to be exempted.Value added tax should not be confused with Sales tax as resellers are taxed under VAT. The taxing authority conducts on audit on the financial statements of the business; this is done to make sure that the correct amount has been collected by the business entity.
Sales tax is regressive on the income of the consumer. This means that it cuts a cross a certain time frame. It is mostly applied on tangible goods as this is where the majority of the low income families spend their share of income on. These goods could be household items and other goods that generally make up the bulk of the family budget. It does not apply to all goods and services affecting all families hence it has been quoted as being discriminative as low income families tend to pay more in terms of tax. This impacts on the families differently although most states try to counter this by introducing exceptions to household goods such as groceries and other services.
One advantage of sales tax is that it is difficult to evade as the price of the tax is charged at a percentage of the price of the goods. This means that there is less tax evasion. The tax advantage enjoyed by monies acquired through illegal means is easily detected and abolished. Sales tax is very effective as everyone at some point has to be levied in one form or another. This makes it one of the top revenue earners for any taxing authority. Sales taxes assist in the maintenance of certain goods or services. An example is fuel tax assist in maintaining of roads all across the country. All sales taxes are ad valorem meaning that they are imposed on the sale.
Drawbacks associated with sales tax is the fact that it is regressive instead of being proportional. It is levied relative to the income decreasing as opposed to income increasing. The rate at which goods or services are taxed varies. Goods or services can be taxed at a higher rate than others. The rate is adjusted arbitrarily and is reviewed from time to time. It leads to overpricing of goods as the levy is passed down to consumers by the business owners, this can lead to the downfall of certain businesses as people will stop frequenting the premise.
Excise tax is mostly levied on goods often considered as luxurious. It is often referred to sin tax due to the nature of goods that it affects. Alcohol, tobacco and gasoline are the main goods that come under this category. Activities such as road use or wagering are taxed.The general perception of this tax is that it is seen as affecting the rich.
Advantages of excise tax is that it can reduce on habits that are considered bad habits such as alcoholism and can also improve on the health of citizens of a country. Its disadvantage is that the rate varies from time to time and it is mostly revised upwards as the goods taxed are termed as luxurious (Seligman, 2001).
In Florida, major taxes that are collected include all the taxes mentioned above. One exception that exists in Florida is that there is no personal income tax. Historically Florida was known for having one of the lowest property tax rates in US, but as time went by, tax rates increased exponentially and the general perception is that it is not fair. After the introduction of save our Homes program, which was meant to protect homeowners from the rising taxes its impact continues to be felt as more and more people are losing their houses due to the recession. The amount of taxes collected has become less and less and this has greatly impacted on the state revenues (Seligman, 2001) For reformation to take place there needs to be an imposing of taxes by each district adequate enough to fund the needs of the local district. Revenues could also be increased by amending the sales tax system by revising the exemptions and closing loopholes. At the moment we need to lower property taxes in Florida in order to spur growth in investments.
Mikesell, John. Fiscal administration: Analysis and applications for the public sector, Wadsworth, 7th, 2007.
Seligman, Edwin. The Income Tax: A Study of the History, Theory and Practice of Income Taxation at Home and Abroad. Adamant Media Corporation, 2001.