Page 187 - Business Principles and Management

Unit 2

7.3 Business Taxes

Goals Terms
• Discuss the nature of taxes and • proportional tax • excise tax
the fairness of progressive, pro- (flat tax) • property tax
portional, and regressive taxes. • progressive tax • real property tax
• Identify and explain the most • regressive tax • personal property
common types of taxes that • income tax tax
affect business.
• sales tax • assessed valuation

General Nature of Taxes

Although government uses many different ways to regulate business, no way is
more important than taxes. The types and amounts of taxes influence business
decisions that, in turn, can influence the total amount of business activity in a
region and in the nation.
Both businesses and individuals pay many kinds of taxes to local, state, and
federal governments. Taxes collected by the federal government account for about
56 percent of all taxes collected, while various state and local taxes account for
the remaining 44 percent. Most corporations pay nearly one-half of their profits
in various kinds of taxes.
Government levies taxes for different reasons. When government decides to
levy a particular type of tax, it must consider fairness to taxpayers.

REASONS FOR TAXES
For what purposes do
governments use taxes? Governments levy taxes mainly to raise revenue (money) to fund new and
ongoing programs. Governments also use taxes to regulate business activity.
Governments set revenue goals that must be reached in order to pro-
vide the various services desired by the public. Examples of these services
range from law enforcement and road building to providing for the mili-
tary defense of the country. It is costly for government to provide the
many services the public wants. To pay for these services, therefore, it
PHOTO: © GETTY IMAGES/PHOTODISC. speed up economic growth by lowering taxes and slow it by raising taxes.
must collect taxes.
Governments also use taxes to control business activity. They can

The federal government also taxes certain foreign goods that enter this
country in order to encourage consumers to purchase American-made
rather than foreign-made products. State and local governments also con-
trol business activity through taxation. For example, they often set high
taxes on alcoholic beverages and tobacco, in part to discourage customers

174 from purchasing these products.