Nature and Purpose of Taxation

1. Tax law distinguishes between objects of taxation and the tax base. A tax object may consist of products, property, transactions, or sums of money. Among the transactions that are taxed are sales, purchases of real estate, and importing goods.

2. The tax base is the physical unit or the amount of money to which a tax rate is applied. A tax on automobiles, for example, may use as a tax base the weight of the car, its horsepower, its age, or its stated value. The tax base of real estate is its assessed valuation. An import duty on coffee may be levied based on the weight or on the stated value.

3. Prior to the 20th century taxation was regarded solely as a means to finance the necessary obligations of a government. The money was used to pay elected officials; maintain military forces; build roads, bridges, dams, and public buildings; and pay for such services as schools, police, and fire fighters.

4. In the 20th century the purposes of taxation have expanded considerably, as have the roles of government in society. Today taxes have three functions. First and foremost, they provide the money that makes it possible for government to function.

5. Second, taxes have an economic significance: they are used to promote such goals as full employment, satisfactory rates of economic growth, and stability of the money supply. The economic goals of taxation are achieved by raising or lowering tax rates. The fewer taxes people pay, the more money they have for their personal use. Conversely, the more taxes they pay, the less money they have available for themselves. This economic use of taxes has been strongly influenced by political reaction to the Great Depression and by the work of economist John Maynard Keynes.

6. The third and most controversial use of taxes is the redistribution of wealth. The purpose of income redistribution is to lessen the inequalities of wealth in society. This is done through what is called a system of transfer payments. The effect of the system is to transfer money from those who have a good deal of it to those who have very little. Two of the most common examples are social security payments and welfare payments made to people who, for one reason or another, do not work. Social security taxes are paid by members of the working population and are given by governments to those who have retired.

7. Apart from these primary tax functions, there are some lesser purposes to revenue raising. Alcoholic beverages and tobacco may be taxed heavily on the ground that their use is injurious to the health of individuals. Such revenue, often called a “sin tax,” is in effect a penalty paid by users of these substances.

Notes:

real estate – недвижимое имущество

import duty – налоговая пошлина, налог на импорт

money supply – денежная масса, количество денег в обращении

transfer payments – трансфертные платежи

social security payments – платежи по социальному обеспечению

welfare payment – государственное пособие