Are the Majority of Taxes Collected by the Government Regressive or Progressive - Assignment Example

Sur Lecturer Are Majority of taxes collected by government regressive or progressive? Introduction Taxes are the prime means that the government sector uses to obtain the revenue required to operate. Both the local and State taxes are primarily regressive. Taxes provide government control over the resources as well as allocation decisions which may then be used to perform specific activities and functions such as constructing highways and streets, defending the nation, or providing education. With no taxes, government cannot exist and with government, taxes are definitely inevitable. What is regressive tax and regressive tax? According to (Mullins & Sharon, 38), progressive tax can be defined as the tax which as the income of payer increases, its rate also increases. That is, persons who receive high incomes have a huge proportion of their incomes chopped off to pay the tax. In the contrary, a regressive tax is a tax whose rate rises as the income of payer decreases. Progressive tax system implies higher tax brackets pay a higher ratio of their income as opposed to lower tax brackets who only pay a smaller percentage. In regressive tax, everyone is basically put on the same level as they pay about 20% or 30% in taxes. Because of this reality, progressive taxes are viewed as reducing inequalities in the income distribution, while regressive taxes may have the impact of increasing these inequalities. Taxes which are normally reflected as progressive comprise estate taxes and individual income taxes. Income taxes which are nominally progressive, nonetheless, can become less so in a upper-income categories—principally if taxpayers are permitted to cut down their tax base by announcing deductions or by excluding some income components from their taxable income. Income taken over the course of any given year does not certainly offer the best measure of a taxpaying ability. The largest source of revenue from tax for the Federal government  There are various source of revenue from tax for the Federal government such as property taxes, corporate income taxes, sales and excise taxes. However, personal income taxes form the largest source of revenue for the Federal government. In the 2010 fiscal year, individual income taxes and payroll taxes constituted about 82% of the total revenue collected by the Federal government. But when singled out, nearly 47% (about half of all federal government revenue) originate from individual income taxes.  Income tax is normally progressive: a higher-income home pays a huge share of their income with taxes compared to what lower-income households do. Other sources of tax revenue As hinted earlier, other sources of tax revenue consist of corporate income, the estate tax, excise taxes, and fees.  The corporate income taxes` contribution to the Federal revenue is another 9 percent. Customs duties, excise taxes, gift taxes, estate taxes, and miscellaneous receipts (retributions of Federal Reserve System as well as various charges and fees) made up the balance. It`s worth noting that the composition of revenue from tax has noticeably changed over the previous half century. However, the share originating from individual income taxes remained roughly constant, whereas payroll taxes have caused a larger share with corporate income and excise taxes having smaller shares. Payroll taxes increased following the creation of a Medicare in 1965. According to State Government Tax Collections in Washington, the taxes for Medicare, coupled with periodic increases in the Social Security taxes, triggered payroll tax revenue to increase from 1.6 percent of Gross Domestic Product to 6 percent or more since 1980. The payroll taxes included unemployment insurance, railroad retirement, and pension contributions of federal workers. By law, both the employers and employees share the cost of a payroll tax, but research has revealed that employers do pass their share of cost on to the workers in form of lower wages yet payroll taxes are entirely regressive: they gather a higher percentage of the total earnings from the lower-income workers compared to higher-income ones (Mosher & Orville, 84).  Nonetheless, if one scrutinize the overall effect of Medicare, unemployment insurance, and Social Security — the benefits they offer together with the taxes they collect — without doubt these programs are progressive. The corporate income taxes constitute about 10 percent of the federal revenue, with another 9 percent coming from estate taxes, the excise taxes, and other taxes.  The excise taxes are normally collected upon the sale of some goods such as fuel, tobacco, and alcohol; they are intended to increase revenue and, in certain cases, discourage the consumption of these taxed product (Nice, 47).  Again, these sources of revenue made up around 3 percent of the federal receipts in 2013.  Federal government single largest category of expenditure The single largest share of Federal government spending is education that accounts for about 44 percent of the whole direct general expenditure. A huge chunk of this spending is targeted at both secondary and elementary education that alone aggregates to 41 percent. Have in mind that nearly all expenditures in this category are done by the independent school districts that are set up simply for education, even though a number of big cities can operate their own schools as municipal department (Mikesell, 120). Moreover, a considerable share of these resources is funded by state aid, whereas the provision stays a critical local concern. In most counties and cities, two main traditional responsibilities are local transportation, that is public roads and highways and public safety, that is police, fire, and correction (Nice, 28). Where this money goes In 2013 fiscal year, the federal government consumed $3.5 trillion on services it offers, such as health care programs; Medicare and Medicaid, national defense, Social Security aids for the disabled and elderly as well as investments in education and infrastructure. Federal tax revenues funded approximately $2.8 trillion of this $3.5 trillion with borrowing financing the remaining amount (about $680 billion). Cities, municipalities, counties as well as school districts depend on property taxes to obtain money for their budgets. Federal governments then utilize the money they have collect from taxes to help finance the many public services which they provide. Nevertheless, the more money a Federal government consumes, the higher the tax bill goes to recover any budget shortfalls. Work Cited Mikesell, John L. Fiscal administration: analysis and applications for the public sector. 6th ed. Belmont, Calif.: Wadsworth Pub. Co, 2003. Print. Mosher, Frederick, and Orville Poland. The Costs of American Government. New York: Dodd, Mead, 1964. Print. Mullins, D.R., and Sharon Patricia Cox. Tax and Expenditure Limits on Local Governments. Washington, D.C.: Advisory Commission on Intergovernmental Relations. Government Printing Office, 1995. Print. Nice, David C. Public budgeting. Belmont, CA: Wadsworth/ Thomson Learning, 2002. Print. State Government Tax Collections in. Washington, D.C: U.S. Dept. of Commerce, Bureau of the Census, 2007. Print. Read More