Direct Vs. Indirect Taxation Research Paper Example | Topics and Well Written Essays - 2000 words

Direct Vs. Indirect Taxation - Research Paper ExampleIn order to assess our argument it would be important for us to know the difference between direct and indirect taxation. Direct taxes are those taxes that are levied on ones income. They are calculated annually and a certain percentage is levied on the earnings of a person. Similarly, indirect taxes or not levied on the peoples income. Instead, indirect taxes are paid on the grease ones palms of practiceds and services. They are paid whenever a purchase is made. They are included in the interchange price of a good and service and hence a person cannot escape indirect taxes since he is paying not only the price of the good or service, but also the portion of a tax. Hence it is unavoidable and is paid by everyone irrespective of his earning. (McConnell)We can use the supra definitions to classify the federal income tax and federal sales tax into one of the ii classes of taxation. This would help us in determining which is more useful in terms of receipts for the government and welfare of the society. Since we know that federal income tax is levied on peoples income and is calculated annually, we can classify it as a direct tax. This heart and soul that it is levied on the persons income. It is a progressive tax where the rich person pays a higher amount than a person who is earning lesser than that person. On the other hand, federal sales tax is levied on the purchase of goods and services. People pay this type of tax only when they buy or sell something. It is not charged on the persons income and it is a regressive tax meaning.... Hence it is unavoidable and is paid by everyone irrespective of his earning. (McConnell) We can use the above definitions to classify the federal income tax and federal sales tax into one of the two classes of taxation. This would help us in determining which is more useful in terms of revenue for the government and welfare of the society. Since we know that federal income tax is levied on peoples income and is calculated annually, we can classify it as a direct tax. This means that it is levied on the persons income. It is a progressive tax where the rich person pays a higher amount than a person who is earning lesser than that person. On the other hand, federal sales tax is levied on the purchase of goods and services. People pay this type of tax only when they buy or sell something. It is not charged on the persons income and it is a regressive tax meaning that both rich and poor pay stir amount of tax if the selling price of a good is same for their purchases. In other words, we can differentiate between these two types of taxes by victimisation mathematic equation. Income tax is charged on ones income. It is a percentage of ones income. Lets suppose that the prevalent income tax order in the United States of America is 20%. The calculation of taxes for the income will be the following Income Tax = Annual Income * 0.25 Similarly, in case of an indirect tax such as federal sales tax, the calculation for the income tax will be the following Tax = Selling Price of Commodity * Percentage of the Tax These two equations tell us that federal sales tax has nothing to do with the income of a person. It is calculated just by looking at the value of the purchase that the person is