How do governments decide which products and services to tax?

When the government sets a tax, it must decide whether to levy the tax on the producers or the consumers. This is because the economic tax incidence, or who actually pays in the new equilibrium for the incidence of the tax, is based on how the market responds to the price change – not on legal incidence.

How does the government determine your taxes?

Tax Brackets The tax rate that applies to each individual is set up in a marginal tax bracket that shows the highest tax rate to be paid on income earned. In effect, the amount of taxable income that one earns determines which tax bracket they would fall into.

Why does the government impose specific taxes?

There are some key reasons why government needs to levy taxes; the main ones are: To raise revenue to finance government spending. Managing aggregate demand – to help meet the government’s economic objectives. Changing the distribution of income and wealth.

Why is there a tax on a certain product?

An excise tax is a sales tax that applies to a specific class of goods, typically alcohol, tobacco, gasoline, or tourism. Some excise taxes are charged to discourage a behavior or purchase of certain goods that are thought to be detrimental to the economy.

How do suppliers determine their price?

For certain categories, suppliers will determine their pricing by how much they predict that a certain buyer is willing to pay. If the buyer appears to not be too concerned with pricing (e.g., a big company buying a low cost service), the supplier will often inflate its markup.

What products does the government tax?

General fund excise taxes are imposed on many goods and services, the most prominent of which are alcohol, tobacco, and health insurance. Other general fund excise taxes include taxes on local telephone service, vehicles with low-mileage ratings (“gas guzzlers”), ozone-depleting chemicals, and indoor tanning services.

Who determines the amount of federal tax?

To determine the correct federal tax withheld from your pay, you will need to complete your W-4. Your employer withholds from your paycheck based on the information you fill in on your Form W-4, like: Your filing status (Ex: single or married filing jointly), The number of dependents or allowances indicated.

How much are taxes on purchases?

U.S. Sales Tax

Why does the government impose indirect taxes on products?

The purpose of indirect taxes is to: Generate tax revenue for a government. Discourage consumption of ‘harmful’ products – such taxes are often called ‘sin’ taxes. Encourage consumption of ‘good’ products.

Why would a government impose indirect taxes?

The Purpose of Indirect Taxes People may wonder why they must pay extra money on top of the purchase price for common goods or services. Governments also impose indirect taxes to control who purchases certain items and also to dissuade young consumers from buying products like cigarettes, beer, and ammunition.

What determines sales tax?

Sales tax is measured by determining the business’s gross receipts and subtracting any non-taxable sales. The CDTFA may conduct an audit of sales/use tax at their discretion. The current tax rate in California is 7.5 percent statewide, and is due to decrease to 7.25 percent at the end of 2016.

How do supply and demand determine the price of a product?

It’s a fundamental economic principle that when supply exceeds demand for a good or service, prices fall. If there is an increase in supply for goods and services while demand remains the same, prices tend to fall to a lower equilibrium price and a higher equilibrium quantity of goods and services.