Taxes Terms

Ability to Pay Principle

A general tax theory stating that those with greater wealth and therefore a greater ability to pay should finance a larger share of the government’s efforts regardless of their use or non-use of a particular government service.

Benefits Received Principle

A general tax theory stating that specific taxes should be paid only by those using a particular government program and in proportion to amount that they use it. Gasoline taxes are an example of this principle

Corporate Income Tax

A tax paid by corporations on their earned profits.

Customs Duties

Taxes on various imported goods collected exclusively by the federal government.

Excise Tax

A tax on a specific item such as gasoline or tobacco. Often, the proceeds from the tax are directed toward a specific government program.

Hillsborough Treat

A mixture of mud and human and animal waste thrown at government officials and spread on government buildings during the Patriot protests preceding the American Revolution.

Internal Revenue Service

A bureau within the Treasury Department charged with administering the federal tax system.

Medicare

A federal program funded by payroll taxes that provided medical benefits to persons 65 and older.

Payroll Taxes

Taxes that employers are legally obligated to withhold and/or pay on their employees' behalf. These include state and federal income taxes, unemployment insurance taxes, and FICA taxes that fund Social Security and Medicare.

Personal Income Tax

A tax levied on an individual’s income derived from wages, salaries, business profits, and investment.

Progressive Tax

A tax that imposes escalating tax rates in accordance with escalating income. The higher your income, the higher percentage of your income you are required to pay.

Property Taxes

Taxes assessed on the value of an individual’s or corporation’s property. A common form of local (county and city) taxation. Most commonly, local governments tax only real property—that is, land and the buildings attached to the land. But some also tax personal property such as cars, jewelry, and furniture.

Proportional Tax

A tax that charges the same tax rate on all income levels. Regardless of income, the same percentage of an individual’s income is consumed by the tax.

Regressive Tax

A tax that imposes higher rates on people with lower incomes. The poorer you are, the higher percentage of your income is absorbed by the tax.

Sales Tax

A form of taxation commonly employed by state and local governments.

Social Security

A federal pension program providing economic assistance to the elderly, and the survivors of deceased workers who paid into the system. Social Security is funded by payroll taxes.

Tax Incidence

Refers to the distribution and burden of a tax.