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What is a Surtax?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 November 2016
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Surtaxes are additional taxes that are assessed on assets that have already been taxed. In some cases, the surtax is actually an additional tax on taxes that have already been paid. While there are several different models used in order to implement a tax structure of this nature, a surtax typically involves enacting legislation that authorizes a levy on the income of a business or individual, when the net income generated within a specified period is over a certain figure.

Just about every nation makes use of some type of surtax as a means of generating additional revenues for use with different governmental functions, or to meet some type of additional burden on the resources of the country. In wartime, the use of a surtax to fund the war effort is not unusual. One model for this type of levied tax is to impose an additional tax that is paid after the standard and usual income taxes have been calculated. In many cases, this additional tax is a fixed percentage of either the taxes due on income generated, or a portion of the income that exceeds a base amount.

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A surtax may be calculated as a graduated income tax. With this model, several tiers of income levels are put in place. The actual percentage of the surtax depends on which of these levels or tiers is relevant to the income generated. For example, if the taxable income falls between $500,000 and $1,000,000 US Dollars (USD), the taxpayer pays an extra tax of two percent. Should the taxable income exceed the $1,000,000 USD figure, the taxpayer is assessed a surtax of the four percent.

The implementation of a surtax may take place in times other than wartime. One example is when a nation is attempting to recover from a recession. Here, the idea is to impose a tax that applies only to individuals and businesses that generate substantial incomes during the course of a tax year. The additional tax generates funds that the government can use to stimulate the economy, possibly resulting in lowering the unemployment rate and stimulating the production of goods and services. While there are proponents who see this added tax as an ideal way to accomplish this goal, others feel that the surcharge does more harm than good. The idea is that the tax minimizes the resources that businesses could use to recall employees who were laid off, or to fund other strategies that benefit the communities where those companies are established.

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BigManCar
Post 6

A surtax on goods can be a problem too, because it can create a black market or "underground economy". In Greece, which has very high taxes to fund generous social programs, they have what they call "black money". A quick search will find a lot of articles about this.

Basically, they have high taxes, but nobody pays them if they can help it. Property taxes sit uncollected. The high national sales tax leads to a lot of things being sold "off the books' whenever possible. Even doctors, part of the "free" national health care, often demand cash up front before they will treat some types of patients.

In essence, you run the risk of the extra tax actually reducing revenue because people will find ways to cheat on taxes they find unfair.

Veruca10
Post 5

@Cupcake15 - That is true, although various flat tax plans do have exemptions or rebates for lower incomes to help avoid overtaxing them. As of now, so many people don't pay any federal tax at all that I think it has become a little imbalanced. If you take from 50% of the people and give it to the other 50% of the people, even if the 50% you're taking it from can afford it, there comes a point where it is unfair.

Remember, compared to most of the rest of the world our poorest 50% is doing pretty well. I don't hear too many of them volunteering to give money to the rest of the world, many of whom are starving, just because they can "afford it".

emtbasic
Post 4

There's nothing worse than paying tax on top of tax. This really annoys me with things like gasoline and liquor. You pay the retail price, plus state "special" tax, plus federal "special" tax, plus "sin" tax, if any, plus sales tax. Big fun.

Plus, a lot of the taxes are a percentage, so when the price of something goes up, the tax revenue goes up. Which makes the government agencies get used to the revenue. Which means that when the price goes back down, they bemoan the "loss", which is really only a return to normal, and want to raise the tax.

At some point enough is enough, and people are going to get really sick of being taxed to death. I'm surprised it hasn't happened already.

SauteePan
Post 3

@Cupcake15 - I don’t know about having a national surtax. I think that if surtax or a flat tax were to occur in the United States, it would have to be capped and some essential categories like food would have to be exempt from taxes.

Also, we would have to then curtail the current IRS tax laws because if not we will have double taxation just like they have in many countries in Europe. If we develop a national surtax we then have to consider abolishing the income tax because if not it would just be too much, but that is going to be a huge hurdle because government programs are almost impossible to change or abolish once they have

been implemented.

I think that it is very hard for politicians to cut taxes at all once they create a tax like this. We have to be careful with what we wish for because there is always another side to consider.

cupcake15
Post 2

@Oasis11 - A flat tax sounds like a good idea until you really analyze it. First, a surtax on goods and services would make everything more expensive and it would hit the poor disproportionately harder than it would the wealthy.

The reason is simple. For example if you apply a surtax on cars it might mean that the poor person will no longer be able to afford to buy a car because the additional tax puts the car out of reach.

However, a wealthy person can easily pay this tax and not be affected by the outcome. If you go further and tax food the same way you will find that a poor person may have to buy fewer groceries because they will not have any income leftover to pay the tax while a wealthier person with a lot of disposable income can buy what they want because the amount will not affect their standard of living.

oasis11
Post 1

I think that estate tax is surtax that is unfair because these assets were taxed when the person was alive. The only difference is that the heirs are now being taxed on the inheritance that they received.

I personally don’t think that we should have an estate tax because these assets were already taxed at one point in the deceased person’s life and now they are going to be taxed again. It just doesn’t seem fair.

I understand that the government has to raise revenue but I think that maybe a surtax on goods and services like a flat tax might be better because tourists could also contribute to the government’s revenue and more money could be raised.

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