Posted by: admin : Category: Decide what to tax and how much to tax are among the most sensitive economic decisions a government can make. Taxing a good or activity essentially raises the cost of it from the perspective of the tax-payer, providing a disincentive that may affect decisions about whether to continue purchasing the good, engaging in the activity or affect the degree to which the tax-payer does so. These decisions can be enormously controversial politically. Indeed, whether taxes should be raised or lowered is often at the forefront of political campaigns.
In most countries, government raise much of their revenue by taxing the income of their citizens. Usually, a graduated tax is imposed, which rises as a citizen’s income rises. Graduated taxation systems feature a number of varying tax rates. As taxable income crosses a number of threshold levels, the new (and usually higher) tax rate will kick in, meaning that all income above the threshold levels is taxed at the new rate. This can mean that a person with a high income, which crosses a number of taxation value thresholds, maybe be paying tax on his or her income at several different tax rates.
Taxation rates are also applied to other kinds of taxes such as Value Added Tax, but it is more common for these taxes to be single static values rather than graduated in nature.