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Tax Law

Corporate Tax Cuts And Effective Rates

Today’s complex and intricate tax law system make it extremely difficult to comply with the plethora of complicated taxation questions that taxpayers may face. Even the simplest of queries turns out to be a major headache when presented with the seemingly insurmountable tax code. Taxation concerns not only affect individual citizens but also businesses and corporations. Business taxation is basically the taxation of assets of a business and its income from such assets. Individual tax concerns pertain to income from salary or sale of stock options. Corporations have different concerns apart from personal tax.

Taxation issues are primarily of three types: progressive, regressive, and proportional. Progressive taxation is based on the principle that the more money a person earns, the higher his or her tax burden will be. This burden is then passed down to succeeding generations. The concept behind progressive taxation is to tax wealth more than the income of the individuals, so that it remains relatively intact for the generation to come. In regressive taxation, the burden of taxation is placed on individuals only so that they are able to pay their share of tax liabilities. And finally, the most regressive system of taxation is proportional, wherein a particular percentage of the income is taxed in comparison to the total income of an individual or a group.

Taxation issues are further categorized into two main classes: progressive and regressive. Progressive taxation systems allow for the taxation of income and capital gains at pre-determined levels. Regressive taxation systems allow for the taxation of income and capital gains at different rates depending on the extent of one’s dependency on others. A perfect example of progressive taxation system is the US system. Under this scheme, both dividends and capital gains are charged.

Income tax is collected by charging an income tax liability to the liable party on a monthly basis. It is payable only when the liable party receives a taxable income or a receipt from a source specified in the tax return. Receipts are considered as taxable income if they are credited to the person’s account before the end of the month which falls within the tax return period. When tax liability is not cleared in the month of receipt, the person pays the amount from his or her savings.

Both types of taxation are structured to ensure that there is a fair proportion between tax collection and the revenue of the government. While the intention of both types of systems is to ensure that the government gets its money, they also have a few limitations. Some of the most common limitations of the corporate tax cuts are:

Allocation of resources is often very difficult under progressive taxation systems. Individuals often pay taxes even if they have no intention of paying them. This, in turn, makes effective use of a portion of the available resources to be exploited for public benefit. In this way, taxation helps support vital public programs such as healthcare, education, retirement funds and basic research. These are some of the reasons why taxation is termed as a key performance indicator.