Principles of Taxation

The benefit principle of taxation is based on two ideas. The first and foremost is that those who benefit from services should be the ones who pay for them. Secondly, people should pay taxes in proportion to the amount of services or benefits they receive. But there are two limitations of this type of taxation. First, many government services provide the greatest benefit to those who can least afford to pay for them (i.e. welfare). The second limitation is that the benefits often are hard to measure.

The second principle of taxation is the ability-to-pay principle, which is based on the idea that people should be taxed according to their ability to pay, regardless of the benefits they receive. This type of tax recognizes that societies are not always able to measure the benefits derived from government spending. It also assumes that people with higher incomes suffer less discomfort paying taxes than people just getting by on their income would.

The Three Types of Taxes

The three types of taxes are the proportional tax, the progressive tax, and the regressive tax.

A proportional tax imposes the same percentage of taxation on everyone, regardless of income. If the percentage tax rate is constant, the average tax rate is constant, regardless of income. This means that if a person's income goes up, the percentage of total income paid in taxes does not change.

The second tax, the progressive tax, imposes a higher percentage rate of taxation on people with higher incomes. Progressive taxes use a marginal tax rate that increases as the amount of taxable income increases. Therefore, the percentage of income paid in taxes increases as income goes up.

The final tax is the regressive tax, which imposes a higher percentage rate of taxation on low incomes than on high incomes. For example, if the state sales tax were 5%, the person with the lower income would pay a greater percentage of their total income in sales tax.

Vocabulary focus

Ex.4. Match the words on the left with the definitions on the right.

1	externality	a	money that you have to pay to the government so that it can pay for public services
2	fiscal policy	b	a rate of tax that is paid on your next unit of income; the highest rate of tax that smb pays
3	transaction	c	the percentage of an amount of money or of the value of smth that has to be paid as tax
4	tax	d	responsibility for your decisions and actions and readiness to explain them when you are asked
5	legal tender	e	practical or financial help that is provided, often by the government, for people that need it
6	tax loophole	f	the activity of controlling a company, an organization, or a country; the way in which this is done
7	tax rate	g	a standard that you use when you make a decision or form an opinion about smb/smth
8	welfare	h	the way in which a government charges taxes or spends money in order to manage the economy
9	taxation	i	= fixed tax; a system in which tax is paid at the same rate, however much you earn or spend
10	benefit(s)	j	third party (or spill-over) effects arising from the production and/or consumption of goods and services for which no appropriate compensation is paid
11	marginal tax rate	k	money that can legally be used to pay for things in a particular country
12	accountability	l	money that is paid to people who are unemployed, ill, etc. by the government or through a system of insurance
13	governance	m	a piece of business that is done between people, especially an act of buying and selling
14	criterion	n	a small mistake in the way a law has been written that allows people to legally avoid smth the law intended them to do
15	flat tax	o	the system or the act of collecting money by taxes

1.l

2.h

3.m

4.a

5.k

6.n

7.c

8.e

9.o

10.j

11.b

12.d

13.f

14.g

15.i

Ex. 5. Make up verb+noun collocations (there may be several variants).

to levy	funds
to carry out	harmful activities
to use	taxes
to raise	the poor
to distribute	functions
to support	criteria
to influence	benefits
to discourage	tax burden
to meet	money
to provide	economic performance
to pay
to collect
to impose
to receive

1. to levy taxes

2. to carry out functions

3. to use funds

4. to raise economic performance

5. to distribute harmful activities

6. to support functions

7. to influence criteria

8. to discourage the poor

9. to meet tax burden

10. to provide the poor

11. to pay money

12. to collect tax burden

13. to impose harmful activities

14. to receive money