tax

A compulsory transfer of money (or occasionally of goods or services) from private individuals, institutions or groups to the state. The amount and timing of the levy exacted from the individual taxpayer may be determined on the basis of any of a very large number of factors, but historically the most common sorts of tax have been levied based on the wealth or the income or some other characteristic of the particular taxpayer at a given time ("direct taxes" like income tax, social security tax, real property tax, estate tax, poll tax, business or professional license fees) or as some form of compulsory surcharge on one or more types of private trade or other voluntary transactions ("indirect taxes" like general sales taxes, specialized excise taxes, import tariffs, marriage licenses, and so on). In addition to the obvious function of raising revenue to finance government purchases of goods and services or income transfer programs, taxation may also be used deliberately as a policy instrument by which government seeks to influence the behavior of various segments of the citizenry by raising the costs of choosing to engage in the kinds of behavior on which taxes are imposed -- the classic examples being "sin" taxes to discourage consumption of tobacco and alcohol or protective import tariffs imposed to discourage the purchase of foreign-made products. (Of course, all forms of taxation will have an impact on the incentives facing the citizenry and thus will affect their behavior -- but frequently these non-revenue effects will not have been analyzed in advance and therefore do not represent deliberate policy. Legislators are rather regularly astonished by the unexpected -- and often negative -- secondary effects of their enactments, such as cigarette tax increases in New York producing diminished revenues due to increases in smuggling of cheap untaxed cigarettes, or newly imposed luxury taxes on yachts meant to soak the rich creating mass blue-collar unemployment in the boat-building industry due to greatly diminished sales.) [See also: tariff , protectionism , demerit good , fiscal policy , elasticity , incentives ]