Taxation Systems Present in Modern Accounting

Accountant computing tax

Regardless of the location, tax systems can be divided into proportional, progressive, and regressive taxes. If a tax system is regressive, it mostly affects the low wage earners. If the system is proportional, the high income earning population, the middle- and the low-income earners will be affected in similar ways. A proportional tax is often called flat tax because everyone pays the same rates no matter how much they earn.

Often, if you are a tax accountant in West Jordan, you will work with progressive taxes. Progressive tax affects the high-income businesses and individuals more than it does low wage earners.

Explained into detail, here is how the three types compare:

Regressive taxes

Here, people earning the least will pay more taxes than those who make the most. In this case, governments assess taxes as measures of value for the asset you buy or own as a taxpayer. The taxation will have no consideration for the amount of money you earn. An example of a regressive tax is an excise tax on consumables such as airfare or gasoline or property tax for real estate. Excise taxes will be fixed and added to the market prices for the service or product.

An example of the excise tax is the sin tax imposed on some activities or commodities with a negative or unhealthy impact on society, such as alcohol, gambling, and cigarettes. The idea behind them is deterring people from buying these products. Critics of the sin tax claim these to affect people who are not well off.

In some cases, Social Security is considered regressive. The tax obligations will commonly be capped at specific levels to protect individuals earning below those amounts. However, high-income earners pay a smaller amount of their income than low earners because of the flat rate.

Proportional taxes

Flat tax systems allocate similar tax rates for all people, no matter their wealth or income. The idea is to form equality in average taxes and marginal tax rates. Per capita tax, for example, is a proportional tax. Occupational and gross receipts fall under this category. Supporters of this system claim that it stimulates economic growth by urging people to be more diligent because they will not pay more when they earn more. Supporters also think businesses are likely to invest and spend more with a proportional tax system and so more money will be in circulation.

Progressive taxes

Accountant working on tax

This tax system relies on taxable amounts for every person’s income. There is a speed-up schedule that allows high wage earners to pay more taxes. Tax liability and tax rate go up as a person becomes wealthier. Progressive tax targets people with more money because they can afford it. The rate changes per taxable income so that at any point, citizens are grouped into categories based on their earnings. Citizens will, however, get exceptions for a regular part of the year, for example. There are also changes that correlate with inflation. The taxpayer gets to pick deductions that contribute to the overall amount.

Under each tax system will be different categories. For example, the estate tax is a progressive tax. It will affect estates valued at a certain amount. As a rule of thumb, get a knowledgeable accountant to handle your finances. They will know how to navigate different brackets to have you pay only what you need to.