Taxes and budget

To tax (from the latin taxare) is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state.

Direct taxes - these are the taxes person/corporation pays directly, i.e. no intermediary involved. These taxes are directly collected by Government from the person/corporation concerned. The person/corp. knows the exact tax liability in this case.

Indirect taxes - these taxes are taxes on consumption. One pays these taxes buying goods, unaware of the exact amount that it would contribute to. The burden of these taxes are shifted from manufacturer to consumer. It’s an unavoidable burden. Example of this tax would be excise duty.

Kinds of taxes

Income tax◦ An income tax is a tax levied on the financial income of

persons, corporations, or other legal entities. ◦ Various income tax systems exist, with varying degrees

of tax incidence. ◦ Income taxation can be progressive, proportional, or

regressive. ◦ When the tax is levied on the income of companies, it is

often called a corporate tax, corporate income tax, or corporation tax.

◦ Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income.

Direct taxes

Personal income tax◦ progressive:

to 85 528 PLN 18% (minus 556,02 PLN), above 85 528 PLN 32%

◦ proportional: 19% Corporation tax

◦ proportional: 19%

Icome tax in Poland

In 2011 you will earn 100 000 PLN. How much personal income tax should you pay?

Example

PLN 556,02-PLN) 528 85 -PLN 000 (10032% PLN 528 85%18 tax

PLN 556,02-PLN 4631,04 PLN 15395,04 tax

PLN 19470,06tax

Wealth tax ◦ is generally conceived as a direct tax on all

household wealth holdings, including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate; and corporate stock, financial securities, and personal trusts.

◦ Because of the broad term "wealth", property tax, capital transfer taxes (inheritance tax, estate tax, gift tax), endowment tax and capital gains taxes are also sometimes referred to as "wealth taxes".

Direct taxes cont.

value added tax – VAT◦ is a consumption tax levied on value added. In

contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage. A VAT is an indirect tax. People are generally not aware of how much VAT they pay.

◦ Maurice Lauré, was first to introduce VAT on April 10, 1954. Initially directed at large businesses, it was extended over time to include all business sectors.

Indirect taxes

standard rate of VAT 23% reduced rates of VAT:

◦ 8%, 5% for: drugs, books, toys, food etc.◦ Rate 0%, for:

delivery of goods within the EU, export.

VAT in Poland

Different rates of VAT apply in different EU member states.

The minimum standard rate of VAT throughout the EU is 15%, although reduced rates of VAT, as low as 0%, are applied in various states on various sorts of supply (for example, newspapers and certain magazines in Belgium).

The maximum rate in the EU is 25%.

VAT in EU

http://en.wikipedia.org/wiki/European_Union_Value_Added_Tax

VAT in EU

Consider the manufacture and sale of any item With a 10% VAT: The manufacturer pays $1.10 ($1 + $1x10%) for the raw materials, and the seller of

the raw materials pays the government $0.10. The manufacturer charges the retailer $1.32 ($1.20 + $1.20x10%) and pays the

government $0.02 ($0.12 minus $0.10), leaving the same profit of $0.20. The retailer charges the consumer $1.65 ($1.50 + $1.50x10%) and pays the

government $0.03 ($0.15 minus $0.12), leaving the profit of $0.30 (1.65-1.32-.03). So the consumer has paid 10% ($0.15) extra, compared to the no taxation scheme,

and the government has collected this amount in taxation. The businesses have not lost anything directly to the tax. They do not need to request certifications from purchasers who are not end users, but they do have the extra accounting to do so that they correctly pass on to the government the difference between what they collect in VAT (output VAT, an 11th of their income) and what they spend in VAT (input VAT, an 11th of their expenditure).

Note that in each case the VAT paid is equal to 10% of the profit, or 'value added'. The advantage of the VAT system over the sales tax system is that businesses

cannot hide consumption (such as wasted materials) by certifying it is not a consumer.

VAT - example

Excise◦ Excise duty is a tax levied on the producer of certain goods,

commodities and activities.Excise duty was originally invented for some or all of the

following reasons: to protect people

◦ from harming their health by abusing substances such as tobacco and alcohol, thus making excise a kind of sumptuary tax

◦ from harming those around them and the general environment, both from overuse of the above-mentioned substances, and including curbing activities contributing to pollution (hence the tax on hydrocarbon oil and of other environmental taxes, as in the UK), or from harming the natural environment (hence the tax on hunting)

to provide monies needed ◦ for the extra healthcare and other public expenditures which will be needed as a

direct or indirect result of excisable activities, such as lung cancer from smoking or road accidents resulting from drink-driving

to punish – many US states impose taxes on drugs,

Indirect taxes

INADEQUATE INCOMES LOW WAGES HIGH PRICES SHODDY PRODUCTS PRODUCT UNAVAILABILITY AND

DISCONTINUATION LOST JOBS FORECLOSURES, EVICTIONS, AND

HOMELESSNESS POVERTY AND HIGH CRIME CHRONIC RECESSION LOW REAL TAX REVENUES

10 effects of high taxation

INADEQUATE INCOMES The total outcome of all of the effects listed below is a large tax

burden. And only workers feel the brunt of this burden, because only workers create wealth. When all of these effects are combined, the tax burden on the average worker is currently about 73 percent of income. So people can't live on their incomes.

LOW WAGES Multiple governments levy so many taxes on businesses that

"taxes" is the highest budget items on the ledger sheets of most businesses. These taxes take away some of the money otherwise used to pay wages. So employers can't pay good wages.

HIGH PRICES Multiple governments levy so many taxes on businesses that

businesses have to raise prices to get money to pay these taxes. So product prices go up. This leads to inflation.

SHODDY PRODUCTS Multiple governments levy so many taxes on businesses that these taxes take

away money otherwise used to improve quality. Instead, businesses must cut corners to make the products and pay the high taxes. Many recalls are the results of businesses cutting too many corners, to save money so they can pay the high taxes.

PRODUCT UNAVAILABILITY AND DISCONTINUATION Because high taxes cost businesses more, they can't provide as many products

as they used to be able to. Property taxes make it expensive to stock products with lower quantities demanded. And manufacturers can't afford to produce the low-demand products and also pay their taxes. The result is that people with allergies to the mainstream products can't buy any products they can use.

LOST JOBS Many businesses go bankrupt, because they can't afford to operate after

government takes it’s cut. Other businesses flee the country, to escape the high taxes. And still other businesses must cut their payrolls to stay within their incomes. The result in each case is the loss of jobs those businesses provided in the economy.

FORECLOSURES, EVICTIONS, AND HOMELESSNESS Because taxes are so high, people who originally entered into mortgages or

rental contracts with the ability to pay them now no longer have the money to pay the monthly payments. And if the taxes are not paid instead, bank quickly seizes the property and sells it at auction. Thus, high taxes cause foreclosures and evictions.

With the foreclosure or eviction comes homelessness, because these victims of government greed can no longer afford to pay rent or mortgage payments. So high taxes cause homelessness.

POVERTY AND HIGH CRIME Because more people can't afford to live on their incomes, the poverty rate

goes up. This causes an additional drain on the budgets of government social programs. This means that each poor person can't get enough to live on.

Many poor people, unable to find jobs because government overtaxed the economy, turn to crime to get the money needed to support their families. This causes the crime rate to go up. And since many of those crimes are robberies, the violent crime rate goes up too.

CHRONIC RECESSION The high taxation takes so much away from the economy that it enters a

permanent form of recession. If government tries to boost the economy with increased government spending, the result is stagflation (simultaneous high inflation and unemployment) instead of prosperity. The only cure for stagflation is to cut both taxes and government spending.

LOW REAL TAX REVENUES The permanent recession and losses of jobs caused by the high taxes

cause a drop in government revenue, as economic production drops. If government then raises tax rates to recoup the lost revenue, production drops again, and the revenue drops even more. In addition to this, the increase in prices caused by the increased taxation prevents government spending from purchasing as much. So high tax rates cause lower real tax revenue collection.

Stop asking for more from government. You will regret getting what you asked for.

Laffer curve – to high taxes cause low budget revenue

A government budget is a legal document that is often passed by the legislature, and approved by president.

The two basic elements of any budget are the revenues and expenses.

Revenues are derived primarily from taxes. Government expenses include:

◦ spending on current goods and services, which economists call government consumption;

◦ government investment expenditures such as infrastructure investment or research expenditure;

◦ transfer payments like unemployment or retirement benefits.

Government budget

A budget deficit occurs when a government spends more money than it takes in.

The opposite of a budget deficit is a budget surplus.

Government debt (also known as public debt or national debt) is money (or credit) owed by any level of government; either central government, municipal government or local government.

Governments usually borrow by issuing government bonds.

Public debt

Public debt in Poland [mld PLN]

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100

100

200

300

400

500

600

700

800

http://www.geocities.com/midimagic@sbcglobal.net/taxefect.htm

www.wikipedia.org Kwaśnicki W., „Zasady ekonomii rynkowej”,

Wydawnictwo Uniwersytetu Wrocławskiego

Bibliography: