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Tax and Taxes in History by Contalisa Davodo http://www.fsctax.com Tax is a feature of all current developed societies. It is a concept with a long history, though the older versions are quite different. Looking at tax, understanding the ideas and the history behind it might just help when we post of that tax check next time. Certain types of tax have existed in society for hundreds of years. Early taxes were paid to societies rulers in return for protection. Indeed paying for services and safety is one of the fundamentals of a tax system. Not all taxes were paid with money - for example Kings in societies that existed before the industrial age were paid by labor or troops. Money is the modern medium for tax, though the ideas have remained fairly clear since the Scot Adam Smith wrote down his tax ideas (Smith was a moral philosopher who is most strongly associated with modern economics). Smith had four rules for tax: 1. It has to be fair; 2. It has to be clear and understandable to the tax payer; 3. it has to be convenient to pay and to collect; 4. it needs to be efficient and bring the government more money than is spends collecting the tax. Although these ideas have been added to in the last two centuries, they still form the principles of taxation. Fairness is the principle that is most interesting, because it is not obvious what it means. Adam Smith was keep that taxes were payable, and that no member of society was punished by the tax system. So how can this be done? The options for taxation that can be considered are: that everybody should pay an equal amount; that people pay an equal percentage of their income; that those who earn more should pay more. Most modern states chose the last option called a progressive tax. Because the rich will still have more money than the poorer members of society when they have paid the tax, this is considered a fair tax system. However, not everyone sees the progressive tax as being fair. The majority of governments agree that there is a danger that high taxes can act as a disincentive. For example if the richer have to pay taxes that are much too high it will affect the motivation for hard work and enterprise. Tax is potentially payable on many things for example, people, property and companies. In addition, there are lots of potential tax types - excise duty, personal income tax, sales tax, customs duty and many more. In 1799 in the UK, the first personal income tax (tax based on earnings) was levied, although it was not until later that it was adopted on a wide scale, and in the US they formally took it up in 1913. Stamp duty is levied on transactions and is often resented. In fact it was one of the reasons behind the American War of Independence. The British were gathering stamp duty, but many people did not believe that they were providing the protection or services that make up the basic law of tax. No more tax without representation became a battle cry for independence. |