“You don’t pay taxes–they take taxes.”–Chris Rock

What are taxes? A tax is a payment of money by people or businesses to a local (Warren County/Front Royal), state (Virginia), or national (United States) government. Everyone (citizen or not) has to pay them. Taxes are how governments generate revenue to pay their bills (public services-water, sewage, roads, employees-police, teachers, etc.)

What are tax structures? A tax structure is the way taxes are imposed on the economy. The tax structure of an economy depends on its tax base, tax rate, and how the tax rate varies.  A tax structure is formed in three ways: Proportional tax Progressive tax Regressive tax

TAX BASE: TAX RATE: EXAMPLE: the amount of money (or value) to which a tax rate is applied. TAX RATE: the percentage of the tax base that must be paid in taxes. EXAMPLE: You buy a $20.00 t-shirt from a store in Front Royal. You pay the cashier $21.06. $20.00 is the tax base $1.06 (5.3% of the $20.00) is the tax rate

How do tax rates vary: Proportional Taxes: often called a flat tax, it will NOT change regardless of the amount of the tax base. A sales tax is a type of proportional tax since all consumers, regardless of earnings, are required to pay the same fixed rate.

How do tax rates vary: Progressive Taxes: the tax rate will change as the amount of the tax base changes. Income taxes are an example of a progressive tax. The more money a worker earns the higher percentage of taxes s/he will have to pay for that earned income.

How do tax rates vary: Regressive Tax: The percentage of tax that person pays in comparison to his/her income. EXAMPLE: Suppose Mary and Joe each buy a computer for $1000.00 and pay 5.3% sales tax ($53.00). Mary earns $4000.00 and Joe earns $3000.00. The percentage of Mary’s income that was paid in sales tax was 1.3% and Joe’s was 1.7%. Thus the regressive nature of the tax says that the more money that you earn, the less impact the tax has on your spending power.

What are different types of taxes Basically there are three types of taxes: taxes on income, taxes on property, and taxes on goods and services (sales).

Who can levy (charge) income taxes? Federal government State government Local (city or county) government Two kinds of INCOME TAXES: Personal Corporate

Who can levy property taxes? State (business property) Local (business and personal) Cars, boats Real estate

Who can levy sales taxes? State Virginia charges 4.3% Local Warren County/Front Royal charges an additional 1%. Other counties in Northern Virginia charge ANOTHER 0.7% (Cities of Alexandria, Fairfax, Falls Church, Manassas and Manassas Park; and in the Counties of Arlington, Fairfax, Loudoun and Prince William.)