The Wiley Blackwell Encyclopedia of Consumption and Consumer Studies

Taxes

CHRISTINE A. WERNET

University of South Carolina, USA

DOI: 10.1002/9781118989463.wbeccs226

There are many different taxes that are levied on citizens of a country. The two main reasons for taxation are to redistribute income among the population and to generate government revenue (Davies 1986). Redistribution of income can generate more equality in a society, and government revenue is needed to fund various endeavors from national security to education, all of which are necessary to maintain peace and prosperity. There are three main types of taxation: proportional, progressive, and regressive taxes.

Proportional taxes refer to taxes that equally burden all income groups in a society. Proportional taxes are sometimes referred to as a flat tax. For example, if a society had a proportional income tax of 15 percent, a family with an annual income of US$100,000 would pay US$15,000 a year in income taxes, while a family with an annual income of US$10,000 would pay US$1,500 a year in income taxes.

Progressive taxes are taxes that require those who earn more money to pay higher taxes. Federal income taxes in the United States are progressive. The breakdown of federal income tax rates for 2013 is listed in Table 1. The Internal Revenue Service (IRS) in the United States has a bracketed income tax system with the goal of generating government revenue without overburdening those who are less able to pay. The share of taxes that each group pays is similar to its share of the nation's ...