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Congress exercises the taxing power to finance the costs of operating the Federal Government as well as for non-revenue purposes! Constitutional Limitations: • Taxes may be levied only for public purposes • Export Taxes are prohibited • Direct taxes are to be equally apportioned based on a state’s population • Indirect taxes are to be levied at the same rate across the country Implied limitations: •The federal government may not tax state or local governments, and vice-versa •This was a result of the court case, McCulloch v. Maryland •Non-profit and Religious organizations are generally not taxed INCOME TAXES: • These are progressive taxes on individual incomes. • These are usually payroll taxes- taken from pay by employer • Businesses pay Corporate Income Taxes Income taxes are the largest source of revenue for the national government! Other Federal Taxes: • SOCIAL INSURANCE TAX: - paid as a pay roll tax - funds social insurance programs - this is a regressive tax • EXCISE TAX: tax on goods manufactured and sold within the U.S. • CUSTOMS DUTIES (tariffs): a tax on imported goods; often considered a “protective” regulation State Taxes: •Sales Taxes •Income taxes •User Charges •Highway Tax on Gasoline Local Taxes: • Personal Property Taxes • Property Transfer Tax • Licensing and User Charges • Meals Tax!!! • Income tax and sales taxes are not used in Henrico The Government taxes for nonrevenue purposes: •To regulate certain activities •To discourage certain activities •To protect American business Different tax structures affect taxpayers differently and can be distinguished by whether the tax burden falls more heavily on those with higher or lower income levels. • A progressive tax takes a larger percentage of taxes from people in higher-income groups than from people in lower-income ones; the United States federal income tax is an example. • A proportional tax, also called a flat tax, is one in which the same tax rate is paid by people at all income levels. People who earn more pay more, but they pay the same percentage rate. Property tax is an example of a proportional tax. • A regressive tax applies in the same way to everyone, but the tax paid represents a larger share from lowerincome groups than from higher-income groups. Sales tax is a regressive tax.