For a more complete description of the essence of the tax rate used as a tool of tax policy at the state level, it is necessary to define certain terms.
So, taxes are mandatorypayments of individuals and legal entities to the budget of the state of all levels with the terms established by the current legislation. The totality of all taxes in the country forms a tax system that is based on legislative state acts. It is these normative documents that establish the components of the tax: the object of taxation, the subject and the tax rate.
In turn, the tax rate is divided intoaverage, marginal, effective, preferential and zero. The average tax rate is the ratio of the total tax to income that is taxable. The marginal tax rate shows the ratio of the increment of taxes paid to the increase in income. The effective tax rate is equal to the quotient of dividing the additional income to be paid in the course of economic activity by the amount of income derived from the same activity.
Comparing the average tax rate with income,it is possible to define such methods of tax payment: progressive, at which an increase in the rate is observed with an increase in the income received; Regressive, which provides for a reduction in the rate of income growth; proportional, ensuring the invariability of the rate regardless of the income received in a certain period.
When comparing the application of the listed methodsit can be seen that a progressive taxation system can lead to tax evasion, and payers will do everything possible to reduce their income. This is achieved by regulating the amount of expenditure, and often everything happens within the current legislation because of its imperfection.
A vivid example of the application of the effective ratetaxes can serve as gift transactions, after which the tax authorities recalculate the tax paid. And then the tax rate will be slightly different from the original one.
The question of the amount of the tax rate is constantis the subject of discussions among scientists, politicians and economists. So, for quite a long time the followers of Keynes's theory have argued that the decline in aggregate demand will occur with a high level of taxes. As a result, the state has a reduction in prices and a decay in inflation.
The other side of these disputes, which supportsthe theory of the "supply economy" proves quite the opposite. High taxes can increase the costs of business entities, which, in turn, shift them to the end user in the form of inflated prices and higher inflation. In support of what A. Laffer said, the relationship between the tax rate and budget revenues was formulated in the form of a curve, which was given the name of the author. The economic meaning of this schedule lies in the ability to increase tax revenues, due to an increase in the amount of tax to be paid to the budget. At the same time, this process must continue to a certain level, above which there is a sharp decline in the activity of business entities, and their further activity becomes simply unprofitable. At much lower rates, favorable conditions for work, stimulation of entrepreneurial activity, savings, investments are created and national production is expanding. As a result of this process, there is an expansion of the tax base, which will increase tax revenues, despite the fact that the tax rate will be low.