The tax base is the measure or value, such as income or property value, that determines how much tax an individual or firm pays.
Every tax consists of two pieces: a base and a structure. The tax base is the measure or value that determines how much tax an individual or firm pays. It is usually a monetary measure, like income or property value. The tax structure specifies how the tax depends on the tax base. It is usually expressed in percentage terms; for example, homeowners in some areas might pay yearly property taxes equal to 2% of the value of their homes.
The tax structure specifies how the tax depends on the tax base.
Some important taxes and their tax bases are as follows:
An income tax is a tax on an individual’s or family’s income.
Income tax: a tax that depends on the income of an individual or family from wages and investments
A payroll tax is a tax on the earnings an employer pays to an employee.
Payroll tax: a tax that depends on the earnings an employer pays to an employee
A sales tax is a tax on the value of goods sold.
Sales tax: a tax that depends on the value of goods sold (also known as an excise tax)
A profits tax is a tax on a firm’s profits.
Profits tax: a tax that depends on a firm’s profits
A property tax is a tax on the value of property, such as the value of a home.
Property tax: a tax that depends on the value of property, such as the value of a home
A wealth tax is a tax on an individual’s wealth.
Wealth tax: a tax that depends on an individual’s wealth
A proportional tax is the same percentage of the tax base regardless of the taxpayer’s income or wealth.
Once the tax base has been defined, the next question is how the tax depends on the base. The simplest tax structure is a proportional tax, also sometimes called a flat tax, which is the same percentage of the base regardless of the taxpayer’s income or wealth. For example, a property tax that is set at 2% of the value of the property, whether the property is worth $10,000 or $10,000,000, is a proportional tax. Many taxes, however, are not proportional. Instead, different people pay different percentages, usually because the tax law tries to take account of either the benefits principle or the ability-
A progressive tax takes a larger share of the income of high-
Because taxes are ultimately paid out of income, economists classify taxes according to how they vary with the income of individuals. A tax that rises more than in proportion to income, so that high-
A regressive tax takes a smaller share of the income of high-
The U.S. tax system contains a mixture of progressive and regressive taxes, though it is somewhat progressive overall.