For most citizens, the public debate on taxes is incomprehensible. The tax system is based on three main types of taxes: fixed, proportional and progressive.
Income And Assets Living Standards
Tax is at the heart of reducing inequalities in living standards: it redistributes wealth between the richest categories and the poorest categories. On this subject, controversies are sometimes heated, while a large number of taxpayers have difficulty understanding the very complex operation of taxes. There is a lot of debate about income tax, which is only a small part of the total.
As revealed by a study conducted in 2017, 20% of the people questioned do not know how the income tax works or are wrong about it, this is the case of 26% for the VAT and 58% for the general social contribution. The public debate is based on fragile foundations, and there are hardly any places where the issues of taxation are explained. Let’s try to see it a little more clearly. Make a visit to taxfyle.com/small-business-tax-calculator for getting the best of it now.
If darkness reigns in taxation, it is because there are several hundred different taxes. To understand how they work, we can group them into three large groups, depending on how they are calculated: lump-sum (a fixed sum), proportional (as a proportion of income for example) or progressive (the proportion of which increases with the base, the base in fiscal jargon, which is used to calculate its amount).
The flat-rate tax, the most unfair
The flat-rate tax deducts the same amount (the flat-rate) from everyone. It is the most rudimentary form of taxation, but also the most unfair because it does not take into account living standards. Each taxpayer sees his standard of living drop by the amount of the package. This tax does not change income differences in euros (difference between the income of the rich and that of the poor), but increases relative inequalities (the ratio between the income of the rich and that of the poor).
- Let’s take an example. If we take 100 euros from a person who earns 1,000 and another who receives 2,000, they receive respectively 900 and 1,900 euros after tax. The difference between them remains 1,000 euros but the ratio, which was 1 to 2 (2,000 ÷ 1,000 = 2), goes from 1 to 2.1 (1,900 ÷ 900 = 2.1). This type of tax persists in France in the form, in particular, of the television license. It weighs on the great majority of households (more than 95% have television) regardless of their standard of living, with rare exceptions.
The proportional tax: it reduces the absolute differences
The second form of levy is proportional to income or consumption from which the tax authorities no longer levy an amount, but a proportion. This type of tax reduces absolute inequalities, that is to say the difference in euros. A 10% tax of 1,000 euros represents 100 euros. On 2,000 euros, that makes 200 euros.