Payroll Taxes
Nothing is more certain than death and taxation, wags say. A tax is a compulsory financial charge or levy imposed on people by a legal authority such as a state or any legislative body. The main purpose of a tax is for a state to sustain itself and provide services to the citizenry. In a sense, it is the employees as a group who can never escape the effects of taxation on their compensation since the law requires employers to withhold the amount due as tax from their pay. There are endless debates on the effects of taxation in the arenas of politics and economics but for the ordinary employee, such discussions sometimes border on the absurd. Non-payment of tax can subject an individual to civil censure such as penalties and fines or surcharges. A deliberate non-payment such as tax evasion will result in criminal penalties such as a jail term and perpetual disqualification to hold public office. However, there are tax experts who can provide guidance on how to legally avoid paying taxes due by exploiting certain loopholes in the tax code. This is called as tax avoidance which is definitely better than resorting to tax evasion.
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Most countries adopt payroll tax systems to force employees to save for their own future retirement. There are generally 2 forms of payroll tax: the tax paid by the employees themselves and the counterpart portion paid by the employer. In effect, the two sides each contribute to the tax payment. In some countries, it is only the employer who pays the full tax amount. Still in other countries, the amount deducted from the payroll is not intended solely for payment of taxes but also towards contributions to social security and Medicare. In Brazil, its progressive tax system allows employers to deduct 8% as a forced deposit in a bank and can be withdrawn only in the contingency that an employee is fired or terminated for whatever reason. The United States of America has a very complex tax system and employees often pay state and local taxes in addition to paying federal income tax. However, there are some states that do not have federal, state and city or local tax. An example is Nevada which did away with taxes entirely related to compensation in order to entice business to invest. Sales taxes however are imposed. That was how Las Vegas came about.
The Fairtax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach.
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