The impact of taxes ? Taxes are compulsory contributions imposed by a government entity on individuals or businesses, whether local, regional, or national. Taxes in an economy are paid by whoever bears the burden of the tax, whether that is the entity being taxed, such as a business, or the final consumers of a business’s goods.
What are the impact of taxes?
The most important goal of taxes is to increase the revenues required to cover expenses. Apart from the increase in revenues, taxes are tools for control and regulation with the aim of influencing the pattern of consumption, production, and distribution. Therefore, taxes affect the economy in different ways. Although taxes have positive effects, not all effects are necessarily good, and the following is a description of these effects:
The impact of taxes on production
Taxes can affect production and growth, and these effects on production are analyzed under three points:
- Taxes affect our ability to work, save, and invest.
- Taxes affect the will to work, save, and invest.
- Taxes affect the allocation of resources.
The impact of taxes on income distribution
Taxes have favorable and disproportionate effects on the distribution of income and wealth, and this depends on tax systems. For example, a steeply progressive taxation system tends to reduce income inequality because the burden of these taxes falls largely on the richest people, but a regressive taxation system increases income inequality.
The impact of taxes on employment
Some people claim that higher taxes lead to fewer jobs, either by reducing the availability of capital for investment in job-creating enterprises or by reducing the amount of money available for consumers to use to purchase goods and services, causing them to lose business for the providers of those goods and services. Other people argue that higher taxes can lead to more jobs because governments use that tax revenue to hire government workers, who then buy goods and services from private companies.
Types of taxes
There are several common types of taxes, including:
1: Income tax
It is a tax that takes a percentage of the income generated and gives it up to the state or government.
2- Payroll tax
It is a tax that deducts a percentage that is withheld from the employee’s pay by the employer, which is paid to the government on behalf of the employee to fund Medicare and Social Security programs.
3- Corporate tax
It is a tax that takes a percentage of corporate profits that the government takes as a tax to fund programs.
4- Sales tax
It is a tax that is withheld from some goods and services.
5- Property tax
It is a tax based on the value of land, property, and assets.
6- Customs duties
It is a tax imposed on imported goods, imposed with the aim of promoting internal business.
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