There are two major tax principles;
- Those who benefit from the government services should be the ones paying higher taxes and the people should be taxed according to the amount of benefit they are receiving from government offerings or public services. This principle faces few limitations; firstly the benefit that someone is achieving cannot be measured in monetary terms, secondly the greatest befit is enjoyed by those who pay the least tax or no tax. Such as government welfare programs are run by the tax money, but they provide benefit to people who never pay taxes.
- The ability-to-pay, this principle is based on the idea that people should be taxes according to their ability to pay, regardless of the benefits they receive. This principle assumes that people with higher income have less problem in paying taxes than people earning low income. So the higher income people should pay more so that government can take care of the less privileged people.
The 3 Types of Taxes
The three types of taxes are the proportional tax, the progressive tax, and the regressive tax.
- Proportional Tax
This type if tax has a similar amount on people of every income. This tax is levied regardless if income being earned by a person. So if income goes up, tax amount does not change.
- Progressive Tax
This tax is levied on basis of income. A higher tax is imposed on higher income earners. This kind of tax increases as the income rises.
- Regressive Tax
This type of tax imposes higher percentage rate of taxation on low incomes than on high incomes.
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