What types of tax rates are there?

There are different types of rates in the tax system. They are used in combination to achieve maximum efficiency. What are the types of tax rates that a modern person can meet? What is the difference? How do they affect the tax burden felt by the country's population? What is the tax rate from a macroeconomic point of view? What is their functional and leverage?

What is the tax rate?

First you need to determine the terminology. So, the tax rate (the rate of taxation) is the amount of charges that go to one additional unit of change of the base. When it is expressed as a percentage of taxpayer income, it is called a quota. The rate is an obligatory element of tax.

The tax burden

Under the tax burden understand the percentage level of the ratio of taxes to the gross domestic product of the country. In other words, this concept includes the ratio of all obligatory payments to the state’s GDP. The load can be calculated separately for each subject or for the whole facility (enterprise or person’s salary). To calculate it, it is necessary to use the formula: ELF / D, where ELF - the amount of accrued taxes, D - income.

For underdeveloped countries where there is no strong social security system, a low tax burden is characteristic; in developed countries, on the contrary, it is very high. For the latter, an example of Sweden is indicative, where in some years it was above 60%. It should also be noted in the article the difference between the actual and rated load. They are useful from the point of view that they allow you to roughly estimate the degree of tax evasion. So, with an increase in the nominal load, the number of cases of avoiding payments increases. When it reaches a certain level, the phenomenon of evasion becomes widespread, so the actual state of affairs changes in the direction of reducing the money received. When the state receives the largest amount of money, it is considered that the rate is at the Laffer point. But they try not to reach it. Now let's move on to the main topic and consider the types of tax rates. An indirect tax collection system will be considered only in general terms, and the focus will be on direct.

What types of tax rates are there?

So what kind of diversity is there? Currently, the following types of tax rates are used. Listing them is easy to remember:

1. Proportional.
2. Regressive.
3. Progressive.

Each of them has its own characteristics, which will now be considered. There is another type 4: a firm bet. Its meaning is that a certain amount of tax is established, which must be paid, regardless of income. But due to the lack of its economic flexibility, now the fixed rate is not used on a state scale, but only in the form of rent, for example, per tonne of oil or iron ore (regardless of profit).

Proportional tax rate

Under the action of such a mechanism, the same part of all types of income is taken. In order to predict how it will affect the amount of money received by people, small calculations are made. Thus, compulsory expenses that are spent on food, clothing, medical care, housing and transportation should be subtracted from net income. All that remains (provided that there will be something at all) will make discretionary profit. It can increase or fall after changing existing rates (or introducing new ones). It should be noted that the proportional tax system is rather inconvenient when applied to the poor. So, 500 rubles out of 10 thousand and 5,000 out of 100,000 have different meanings for the owners of these amounts, therefore, in some mandatory payments to the state, other types of tax rates are used. The proportional system is used when working with large businesses.

Regressive tax rate

The regressive tax rate is understood to mean such a procedure of obligations when, with the growth of the taxable base, the percentage that must be paid on your income decreases. Implementation example: when not a certain part of the profits received is fixed, but a certain amount that needs to be paid. For convenience, all income is divided into separate parts. Each of them is taxed by its rate. Therefore, a decrease in the amount of payment does not occur for all income, but for part of it. The regressive tax rate seems to many an unfair taxation method, and in its pure form it is little used. There are more popular types of tax rates. Direct regression is one of the most popular in this category. As a practical example of implementation, a single social tax can be cited . So, with an increase in labor costs, a tax rate is reduced. This mechanism is designed to withdraw wages from the shadows. By the way, about the types of tax rates. Direct regressive is in an exceptional position here. As you have seen, it is used to motivate certain actions and is used by states to increase the level of legality.

Progressive tax rate

Progressive taxation is based on income that is used at one’s own discretion. Of greatest interest is the difference between total funds and spending on priority needs. This principle underlies the progressive tax rate. Indeed, with a quantitative increase in income, the overall share of the funds that go to the normal functioning of a person decreases (spending on food, housing, and other priority payments). And at the same time, the amount that goes to buy luxury goods or pleasures is growing. This tax rate is the solution to cases where a less wealthy taxpayer experiences a stronger tax burden than a wealthy person. Additionally, it is divided into subtypes that differ from each other:

1. Simple bitwise.
2. Single stage.
3. Relative bitwise.
4. Multi-stage.
5. Linear
6. Combined.

Bet Features

No matter how strange it may seem, the tax rate, in addition to its main purpose, performs a number of functions of the economic plan. Some of them:

1. Saving the economy from overheating. Under capitalism, there is such a negative phenomenon as periodic systemic crises that bring down part of the country's economic sector. With the growth of the economy in the context of low tax rates, the market is saturated more. And when the crisis threshold is reached, you will have to fall "from a greater height." To avoid this, governments are pursuing a policy of increasing the tax burden in order to reduce the speed and intensity of market saturation.
2. Regulation of trade flows. The fact is that any infrastructure has limited possibilities for its use. And if the workload approaches the maximum, you can increase transport or transit taxes in order to indirectly affect this situation and additionally replenish the state budget.

The impact of rates on the economy from a macroeconomic point of view

The state can use anything as a reason for establishing a tax, starting with the redistribution of income to create justice and ending with the elimination of negative external economic effects. And in order to better conduct its policy and achieve maximum efficiency, a rate is used as a tool. It should be noted that from a macroeconomic point of view, its reduction stimulates the growth of aggregate demand among citizens and at the same time motivates entrepreneurs to increase their aggregate supply. This follows from this pattern: the less citizens need to pay taxes and the lower the rate on them, the more can be spent on consumption and purchase of new goods. Thus, a cycle of increasing activity in the economy is being created, which although it is not infinite, can positively affect in the short term for a period of several years. This principle is used by states when conducting a stimulating economic policy. With increasing tax rates, firms and enterprises are forced to raise prices, lose market share and reduce their presence. Thus, a transition to a cycle of growth reduction is carried out. You may notice that the reduction in aggregate supply in the market is inversely proportional to the tax rate. This dependence was described in the works of the economic adviser to US President Ronald Reagan Arthur Laffer, who became the founder of the theory of "supply economics."

Conclusion

Summing up, we can say that at the moment there is no universal tax rate that could be applied anywhere. Perhaps it will be developed in the future. Anyway, now we have only what is.