The preceding heuristics provide us with a way to evaluate different taxes. Now we'll look at the primary tax revenue systems. The art of politics is finding a balance among the options.
-
Excise
Excise taxes are levied on the manufacture, sale, or use of select commodities or services, such as liquor or cigarettes (sin taxes) or communications services like telephony or cable.
-
Permit/Toll
Permits and tolls are use taxes. Tolls are associated with bridges and roads; permits are associated with parks and recreation. Usually, there is a set fee for each class of use.
-
Income
Income taxes are annual levies against personal or corporate income. In addition to federal income tax, most states also assess income taxes. Federal taxes are paid on net income; deductions are allowed. Many states levy a flat percentage with no deductions. State income taxes may be deducted for federal income tax purposes but state sales taxes may not, which treats citizens inequitably.
-
Personal Property
Some local governments assess taxes on personal property as well as real property. Often these assessments are in lieu of other taxes, such as state sales tax or state income tax. The most common form of personal property taxed in this manner are automobiles and boats.
-
Real Estate
Taxes are levied against real estate at two points in time. Whenever a parcel of real estate is sold or changes ownership, governments levy real estate taxes which are based on the transaction value (not unlike a specialized sales tax). In addition, real estate property taxes are a primary source of revenue (it's predictable and stable) for local governments. This levy is based upon the assessed value of real property -- land, buildings and homes.
-
Sales
Sales taxes are imposed on the sale and consumption of goods and services. They may be a general tax on the retail price of all goods and services sold or they may be imposed only on the sale of selected goods and services. They are collected by merchant and paid to the governmental entity that levied the tax -- which might be city, county, township, or state. Sales taxes are, generally, regressive, and may be burdensome to collect and distribute if several government bodies are due.