What are the types of tax rates?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

There are different types of rates in the tax system. They are used in combination to achieve the greatest efficiency. What are the types of tax rates that can be found in modern man? What is the difference? How do they affect the tax burden felt by the population of the country? What is the tax rate from a macroeconomic point of view? What are their functions and leverage?

What is the tax rate?

First, you need to define the terminology. So, the tax rate (the rate of taxation with taxes) is the amount of charges that go to one additional unit of base change. When it is expressed as a percentage of the taxpayer's income, it is called a quota. The rate is a mandatory element of the tax.

Tax burden

Under the tax burden understand the percentage of the ratio of taxes to the gross domestic product of the country. In other words, the ratio of all obligatory payments to the state's GDP falls under this concept. The load can be calculated separately for each subject or as a whole for the object (enterprise or wages of a person). To count itit is necessary to use the formula: SNP/D, where SNP is the amount of accrued taxes, D is income.

For underdeveloped countries where there is no strong social security system, a low tax burden is characteristic, in developed countries, on the contrary, it is very high. For the latter, the example of Sweden is indicative, where in some years it was above 60%. It is also necessary to note within the framework of the article the difference between the actual and rated load. They are useful in that they provide a rough estimate of the degree of tax evasion. So, with an increase in the nominal load, the number of cases of payment evasion increases. When it reaches a certain level, the phenomenon of evasion becomes massive, thus, the actual state of affairs changes in the direction of reducing the money received. When the state receives the most money, the rate is considered to be at the Laffer point. But they try not to reach it. Now let's move on to the main topic and consider the types of tax rates. The indirect system of tax collection will be considered only in general terms, and the main attention will be paid to the direct one.

What are the types of tax rates?

So what variety is there? The following types of tax rates are currently in use. The list is easy to remember:

1. Proportional.
2. Regressive.
3. Progressive.

Each of them has its own characteristics, which will now be considered. There is also a 4th type: a fixed rate. Its meaning lies in the fact that a certainthe amount of tax that must be paid, regardless of income. But due to its lack of economic flexibility, now the fixed rate is not used on a national scale, but only in the form of rent, for example, for a ton of oil or iron ore (regardless of profit).

Proportional tax rate

Under the action of such a mechanism, the same part is taken from all types of income. To predict how it will affect the amount of money people receive, small calculations are made. So, from net income, mandatory expenses that go to food, clothing, medical care, housing and transport should be deducted. Whatever is left (assuming there is anything at all) will be discretionary income. It may rise or fall after changes in existing rates (or the introduction of new ones). It should be noted that the proportional tax system is rather inconvenient when applied to the poor. Thus, 500 rubles out of 10,000 and 5,000 out of 100,000 have different meanings for the owners of these amounts, so other types of tax rates are used in a number of mandatory payments to the state. The proportional system is used when dealing with large businesses.

Regressive tax rate

Under the regressive tax rate is understood such an order of obligations, when with the growth of the taxable base, the percentage that must be paid from one's income decreases. Implementation example: when fixing an undefined part ofreceived profits, but a certain amount, which must be paid. For convenience, the entire income is divided into separate parts. Each of them is subject to its own rate. Therefore, the reduction in the payment amount occurs not for the entire income, but for a part of it. The regressive tax rate seems to many to be an unfair way of taxation, and in its pure form it is little used. There are more popular types of tax rates. Direct regressive - one of the most popular in this category. A single social tax can be cited as a practical example of implementation. So, with an increase in labor costs, the tax rate decreases. This mechanism was created to bring wages out of the shadows. By the way, about the types of tax rates. The direct regressive line occupies an exceptional position here. As you have seen, it is used to motivate certain actions and is used by states to increase the level of the rule of law.

Progressive tax rate

Progressive taxation is based on income that is used at its own discretion. Of greatest interest is the difference between total funds and spending on priority needs. This principle is the basis of the progressive tax rate. After all, with a quantitative increase in income, the total share of funds that go to the normal functioning of a person decreases (spending on food, housing and other priority payments). And at the same time, the amounts that go to the purchase of luxury goods or pleasures are growing. Thisthe tax rate is the solution to cases where a less we althy taxpayer experiences a higher tax burden than a we althy person. Additionally, it is divided into subtypes that differ from each other:

1. Simple bitwise.
2. Single stage.
3. Relative bitwise.
4. Multi-stage.
5. Linear.
6. Combined.

Bet functions

No matter how strange it may seem, but the tax rate, in addition to its main purpose, performs a number of functions of the economic plan. Some of them:

1. Saving the economy from "overheating". Under capitalism, there is such a negative phenomenon as periodic systemic crises that bring down part of the country's economic sector. With the growth of the economy in conditions of low tax rates, the market is saturated to a greater extent. And when the crisis threshold is reached, one will have to fall "from a greater height." To avoid this, governments are pursuing a policy of increasing the tax burden to reduce the speed and intensity of market saturation.
2. Regulation of trade flows. The fact is that any infrastructure has limited possibilities for its use. And if the workload reaches its maximum, it is possible to increase transport or transit taxes in order to indirectly affect this situation and additionally replenish the state budget.

The impact of the rate on the economy from a macroeconomic point of view

The state can use anything as a reason for imposing a tax, from redistributing income to create equity and ending with the elimination of negative external economic effects. And in order to better carry out your policy and achieve maximum efficiency, the rate is used as a tool. It should be noted that from a macroeconomic point of view, its decrease stimulates the growth of aggregate demand among citizens and at the same time motivates entrepreneurs to increase aggregate supply. This follows from the following pattern: the less citizens need to pay taxes and the lower the tax rate, the more can be spent on consumption and the purchase of new goods. Thus, a cycle of increased activity in the economy is created, which, although not endless, can have a positive impact in the short term for a period of several years. This principle is used by states when pursuing a stimulating economic policy. When tax rates increase, firms and enterprises are forced to raise prices, lose market share and reduce their presence. Thus, we are moving into a cycle of declining growth. It can be seen that the reduction in aggregate supply in the market is inversely proportional to the tax rate. This dependence was described in the works of the economic adviser to US President Ronald Reagan, Arthur Laffer, who became the founder of the theory of "supply-side economics".

Conclusion

Summarizing, we can say that at the moment there is noa universal tax rate that could be applied anywhere. Perhaps it will be developed in the future. Whatever it was, now we have only what we have.