A tax (also known as a duty) is a payment made either in the form of money or in kind by an individual or a legal entity as required by a state, its equivalent (e.g., tribes, secessionist movements, or revolutionary movements), or a subnational entity. It can be classified as either direct tax or indirect tax. The field of political science or economics that studies taxation is public finance.
In modern capitalist taxation systems, taxes are often paid in money. However, in some traditional and pre-capitalist states (and other human societies of similar function), taxes are often paid either in kind or in the form of corvée labor.
The burden of collecting taxes is usually assigned to a government agency who may impose penalties upon those who do not pay the taxes. The execution of the penalties for non-payment of taxes is typically assigned to another government agency. In the United States, for example, the Internal Revenue Service collects the taxes and the Federal Bureau of Investigation, among other agencies, sees to it that the penalties are imposed upon those who have not paid their duties.
In most cases, especially in modern industrialized countries, the worst penalty for non-payment of taxes is imprisonment. Non-paying individuals and entities may also be punished with fines and/or forfeiture.
Taxation is a very hotly debated issue, especially among those in the fields of politics and economics. The debate usually revolve around two topics: how to collect the taxes and how to use the funds collected through taxation.
History of tax
Throughout history, taxes were collected using the force of political authority. Though taxation's basic purpose is to raise funds, history shows that the manner of collecting and using the funds varies throughout history.
Among the Incans, a pre-monetary society, taxes were paid in the form of labor (see Mita). This manner of taxation became the basis for the Feudal system in medieval Europe.
The Romans developed a more sophisticated method of tax collection called tax farming because the Roman Empire could not keep up with the enforcement of the imperial tax policy across a very wide realm. Tax farmers were assigned to divisions in the Empire and were required to raise funds for the Empire. The advantage, though, of being a tax farmer during the period of the Roman Empire is that the tax farmer can keep for himself or herself whatever has been collected in excess of what Rome requires.
Many Christians believe that the New Testament actually supports the practice of taxation, as Jesus himself acknowledged the appropriateness of "Render[ing] unto Caesar the things that are Caesar's". Moreover, the New Testament considers taxation to be quite a normal duty: there is a "telos" on goods or pilgrims (Matthew 17:25) and tribute money coming from temple tax (Matthew 17:24-27); an annual "phoros" derived from property tax (Luke 20:22;23:2); and poll tax known as "kensos" (Matthew 22:17 Mark 12:14). However, other Christians, such as Christian anarchists, do not hold the same belief.
At certain times in the Middle Ages, during which the feudal system was common, it may appear that governments did not collect taxes since those were times when governments were self-sustaining, owned private lands, and produced their own commodities. As the feudal government (usually the Crown) relied on labor as a source of income, the Middle Ages saw another manner of tax collection not in the form of money but in the form of labor.
Taxes are often imposed to pay for the costs of wars. The American government, for example, raised taxes to fund the American Civil War (1861-1865). In 1914, the American government, through the War Tax Revenue Act of 1914 (telephone tax), raised taxes to fund its efforts in World War I. Preparing for the Napoleonic wars, Britain paid for weapons and equipment by introducing income tax in 1798. Canada raised funds through income taxation as a "temporary" tax under the Income War Tax Act in 1917 in order to pay for the Canadian government's expenses because of World War I.
Woodrow Wilson gets the credit for setting up the current income tax in America in 1913. Originally called Federal Income Tax, Wilson's income taxation scheme deducted amounts from incomes at rates varying from 1% to 7%. Since 1913, the American Tax Code has been rewritten and revised to suit the changing times. Some taxes have been obsoleted, while new ones have been introduced. The American Tax Code has grown to four times its original size since World War I.
Taxes can be proportional, progressive, or regressive
A tax is said to be proportional if its percentage of the income remains the same regardless of income level.
A tax is progressive if its percentage of the income increases in direct proportion to the income level; that is, bigger amounts are deducted from bigger incomes. In progressive taxation, people who earn less are expected to pay less tax, and people who earn more are expected to pay more tax.
A tax is regressive if its percentage of the income is in inverse proportion to the income; that is, the bigger the income, the smaller the tax.