McGraw Hill's Taxation 2023 Chapter 1 part 2

Understanding Tax Structures: There are three basic types of tax structures:

Proportional (Flat Tax): A constant rate applied to all levels of income or purchases. An example is the corporate tax rate of 21%.
Progressive: Higher income leads to higher tax rates. Federal income tax is progressive, meaning those who earn more pay higher rates.
Regressive: Lower-income individuals pay a higher percentage of their income compared to higher-income individuals. An example is the Social Security tax, which caps taxable income at a certain level, making it regressive as income increases.
Federal Taxes:

Income Tax: The most significant source of revenue, making up 60% of federal taxes. It is applied to individuals, corporations, estates, and trusts.
Employment Taxes: Includes Social Security (12.4%) and Medicare (2.9%). Employers and employees split these taxes equally, though self-employed individuals must pay the full amounts themselves.
Excise Taxes: Levied on specific goods like gasoline, alcohol, and tobacco. Unlike sales taxes, excise taxes are based on quantity rather than price.
Evaluating Tax Systems: Tax systems are judged based on sufficiency (providing enough revenue), equity (fairness in distribution), certainty (ease of understanding), convenience (ease of payment), and economy (minimizing costs). Taxes should be designed to fund governmental functions while distributing the tax burden fairly across all taxpayers.

Tax Equity:

Horizontal Equity: Taxpayers with similar income or purchases should pay the same tax.
Vertical Equity: Taxpayers with a greater ability to pay should contribute more, either through higher dollar amounts or higher tax rates.
Types of State and Local Taxes: States typically impose sales taxes on goods and services, property taxes based on real estate values, and income taxes. Local taxes also include use taxes, designed to level the playing field between local and out-of-state purchases.