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Posted by on Aug 31, 2016 in Central Bank, Finance, Tax |

Tax – The lifeblood of a state

Tax – The lifeblood of a state

Tax is a levy aka financial charge imposed on people, property, and other entities. The state is the only party that can set taxes and they have the right to punish those that evade them. The money from the taxes is the primary source of funding for the government. That money goes into the paychecks as well as various projects that government finds useful.

  Those projects range from economic infrastructure investments (roads, education, sanitation and so on), research, public works up to data collection and the operation of the government. The state has to adapt their spending to the amount of money received through the tax. If the spending exceeds the tax amount, then the country goes in debt (this is a case with the majority of the countries in the world).

A country uses several different taxes and the shift tax rates depending on the situation in the state. This distribution of the tax serves as a net that covers all entities within the state. The right tax distribution taxes everyone depending on the size of their revenue. Rich get high taxes while poor get low taxes. If we take a look at the near history, we may see that this was not a case. In last 30 years, the tax burden went from poor to wealthy, but it is still not where it should be.

  A way in which the state handles tax system is a reflection of its ruling party and the path in which they are leading the country. Every system of the taxes has several aspects which reflect the intentions of those that set it. Those elements include the decisions regarding the targeted types of people that will be taxed and the height of the taxes depending on the kind of the community. Another important aspect of the tax system is the distribution of the resources gathered through the taxes. The perfect tax system is the system that takes the percentage of the earnings into account. The poor should have same tax rate as the rich, and the wealthy shouldn’t have any tax relief. This type of thinking is still new, but last 20 years found the raise of the support for this kind of system.

The tax system that is fundamentally wrong fails to tax the right parties efficiently. This leads to additional taxes for those that are burdened by reasonable taxes. The depression that started in 2008 revealed the inefficiency of many tax systems all over the world. Some countries adapted, and they changed their tax system which leads to better taxation of those who were tax-free. Other countries failed to apply that, and they added new charges that brought their economies to the brink of destruction.


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