Regressive Tax - Tax Rates With A Twist

Introduction

Taxes are mandatory levies contributed by all citizens of a nation/country to the government either as a percentage of workers' wages, business profits or included in the price of goods and services. Taxes take different forms, we have a progressive tax, regressive tax, and proportional tax. This paper solely lays emphasis on the understanding of regressive taxes.

What is a Regressive Tax?

A regressive tax is a levy enforced in such a way, to the point that the tax rate diminishes as the sum subject to tax assessment increases. It is not imposed as an income-based tax but it is a tax in which the rate is uniform among all citizens in the state. This kind of tax puts a lot of burden on those citizens with low-income than those citizens with higher income per year.

In any state or country, it is a norm to find different classes of the people which can be simply divided into two groups: The rich group and the poor group. The poor group of citizens strive to afford the three basic needs of life: Shelter, food and clothing. A large percentage of their income goes into these three basic needs. The rich group on the hand, do not need to strive before getting whatever they need. A smaller percentage of their income goes into basic needs. However, since a regressive tax is usually uniform, it therefore has adverse effects on the income of a poor citizen.

For example, If individual receives income of $8,000 per year, and pays 20% of his income on tax. He pays $1,600 as tax. If a higher income earner receives income of $45,000 per year, he only pays about 3.56% of his income to meet the $1,600 tax. The more an individual makes, the less the tax burden. All the tax burden is shifted to the low income earners.

Types of Regressive Tax

Regressive system of taxation cuts across the various taxes we have with uniform tax levies. We have about two types of Regressive taxes which includes:

·         Sales Taxes: This is simply a kind of tax collected by the seller on the goods purchased. It is required to be paid after purchase of the goods. For example, A very successful car dealer and an  environmental lawyer enters a store to purchase some items. They both purchased the same amount of goods costing about $300. The income of the car dealer is $100,000 per month while that of the lawyer is just $250. If they both pay the same amount of tax on the sales made, the proportion of tax amount to income of the lawyer would be more than that of the car dealer. Thus, regressive tax.

·         Sin Tax: This is a type of tax on goods that have been considered harmful to the society such as drugs, tobacco, alcohol and so on. They are utilized to add to the cost with an end goal to bring down their utilization.

 

 

Sunshine Taxes - The Cost Of Paradise

What is a ‘Sunshine Tax’?

‘Sunshine tax’ is an ironic term that's used in the United States of America and Canada. It describes the situation whereby salaries are most of the time lower than the cost of living and national average, in places that have a desirably temperate and favorable climate.

 

These areas tend to have denser populations, along with larger aggregate populations due to because of its good weather. The sunshine tax itself isn't literally a tax, rather it is the raised cost of living in a particular area due to favorable weather, which makes it seem like an involuntary ta is paid.

 

Other Uses

The term "sunshine tax" can also be used to explain anything that has the effect of making costs of goods and services higher in areas like the Sunbelt.

For instance in 2007, the San Diego Union-Tribune calculated the rate of the California sunshine tax at $1.1 billion, this is just for the additional cost of gasoline in the state.

In Hawaii a similar situation occurs, however is referred to the "paradise tax". This is because incomes there are lower and then the cost of living is higher in Hawaii than on the other areas around or on the mainland. It is also commonly referred to as "the price to be paid for paradise" or "the cost of living in paradise”.

 

Causation

Randall W. Roth, in his book titled "The Price of Paradise", listed a number of things that could possibly cause it. This included shipping costs, differences in regulation and land availability.

 

Hidden Taxes - Watch Out

What Is A Hidden Tax?

A hidden tax is one that is not visible to the taxpayer. It is mostly levied on a consumer goods without the knowledge of the final customers. This usually starts from the production process;  the hidden taxes are levied on the goods during production which would in turn increase the cost of that good when it is sold. This is referred to as a hidden tax because the final customers have absolutely no knowledge of the existence of the tax or that they are paying a higher price for the goods.

 

Types Of Hidden Taxes

  • Corporate Income Tax: Corporate income taxes are usually levied on a company's profits, the shareholders and employees, this ultimately reduces the amount they would get in form of salaries. The rate of this tax varies from country to country, it is usually not fixed.

  • Tariff/Import Tax: Tariff or import taxes are levied on goods that are brought into a country. A tariff is a tax on imports or exports between sovereign states. The tax is imposed with the aim of encouraging and protecting domestic industry. It can also serve as a form of revenue for the government.

  • Sin Tax: The taxes levied on consumer goods that are deemed to be harmful to the society are called sin taxes. Examples of goods like these are cigarettes, fast food, gambling, pornography and alcohol. The taxes are enforced with the aim of reducing the purchase of these items as they can be harmful to the consumer in the long run.

 

There are other types of hidden taxes as well, especially prevalent in Australia is a luxury tax applied to highly priced cars.

 

 

 

Accounting Scandals - A Look At Nortel

What Is Accounting? What Is It Used For?

Accounting is often referred to as the language of business as it usually facilitates the communication of the financial position of a company in a way that various users can understand. In simple terms, accounting basically involves setting up, maintaining, and reviewing the accounting records of a company in order to properly understand its financial position.

There are many users, both internally and externally, of the accounting records of an entity. Internal users typically refer to the management, while external users refers to investors and lenders. Accurate information has to be given as regards the financial position of the establishment as manipulation this information can be of great risk to the organization.

 

What Are Accounting Scandals?

Accounting scandals arise from intentional manipulation of financial statements with the disclosure of financial misdeeds by trusted executives of corporations or governments.

 

Consequences Of Restatement

The ‘Corporate Governance Consequences of Accounting Scandals: Evidence from Top Management, CFO and Auditor Turnover’ paper by Anup Agrawal and Tommy Cooperpaper examine the consequences of accounting scandals perpetuated by Crown lawyers at the fraud trial of three former Nortel Networks executives. According to the prosecution the men defrauded $5,000,000, accomplished by engineering a financial loss in 2002, and a profit in 2003 thereby triggering return to profit bonuses of $70 million to top executives.

Using logistic regression models, which control for the other determinants of management turnover, strong evidence of greater CEO and CFO turnover was found among restating firms compared to the control sample. Restatement is the revision and subsequent publication of prior financial statements. Over the three years surrounding the year of restatement announcement, CEOs and CFOs, respectively, faced a 14% and 10% greater probability of being replaced if they worked at restating firms, as opposed to normal firms.