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Why can't I just be paid less instead of having TAX deducted from my salary?

I do not understand the idea of the existence of taxes.

Why can't I just be paid the amount that has taxes deducted away in the first place (including/excluding tax return, doesn't matter)?

I hope someone understands my confusion.

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    Please add a country tag. A generic answer may suffice, but a country tag would get you a far better response. – JTP - Apologise to Monica♦ Sep 19 '18 at 2:21
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    There's a duplicate of this question around, I think, though I can't find it. The answer for the US (and probably many other countries) is that neither your employer nor the government know exactly how much you'll owe in taxes at the end of the year, due to varying tax rates (single vs married vs married filing separately), deductions, credits, income from sources other than a job... – jamesqf Sep 19 '18 at 4:02
  • @jamesqf this? money.stackexchange.com/questions/44170/… – AakashM Sep 19 '18 at 11:43
  • The link @AakashM offered seems sufficient to close this question as duplicate. I'll return shortly to see if there are any objections. Note, OP still hasn't added country tag, although it's only been 10 hours. – JTP - Apologise to Monica♦ Sep 19 '18 at 12:48
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    The purpose of tax is to finance the government. How the government uses those taxes depends on the government. Most use it to provide services to either all citizens (infrastructure, defense) or citizens who need basic support (welfare). But they also use it to shape the economy (subsidies, tariffs). And of course there are corrupt governments that use it to enrich themselves and their supporters. – D Stanley Sep 19 '18 at 15:09
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Your question can be understood in two different ways (or a mix of both):

First option: You are asking why you agreed on a salary of $15,000 annually with your employer, when in the end he subtracts taxes from it and you get only $12,000 in paychecks. Wouldn't it make sense to have agreed on a salary of $12,000 directly?

The answer to that is that there are three parties involved, not just two. Your employer, you and the state. Your employer does pay $15,000 (so that number matters), but you receive only $12,000. The difference of $3,000 goes to the state.

Second option: You are asking, why you have to declare your income in order to pay taxes (or get some back). Couldn't your employer just have deducted the right amount beforehand?

The answer is that taxes are very complicated in most countries, mostly because they serve several different purposes (social fairness, incentives of certain behavior,...). So to calculate the right amount you need a lot of information that your employer should not have (Privacy! He would have to have a lot of information about your life.), and in many cases even cannot have because it depends on your future actions: Most tax laws refer to a whole year as a base, but at the moment of receiving your paycheck you don't know yet what exactly will happen during the rest of the year.

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Because your proposed scheme assumes the person only works one job, which is not always true.

One of the purpose of tax is to re-balance wealth in the society, in addition to, of course, financing the government. When resource is dis-proportionally allocated, people start to fight, and that is not so nice for everyone. So, tax is structured such that if you are rich, you have to pay more; and if you are poor, you pay less (or even subsidized, depending on country).

So, if I make $1,000 a year, I pay 5% tax. If I make $5,000, I pay 10% tax. However, my employer would not know how many jobs I'm taking. Only I know that. All he knows is that my salary is $3,000.

Furthermore, I may be subjected to tax reduction. For example, if I am a disabled person or I have children, I would pay less tax since my cost of living is higher. If I spend my salary on further education, I can also get tax reduction as I am not spending that money on luxury, but on ways which may contribute to society in the future.

My employer would not have this information.

These are just examples of course, different countries have different tax rates and reduction schemes.

It is also in my benefit if tax is paid later. Instead of keeping the money in the bank until taxation comes, I can use that money for investment, potentially ending up with more. After all, it is my money, I earned it and so I should have the right to use it.

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    "The purpose of tax is to re-balance wealth in the society." Although that is some effect of taxes in some areas, I disagree strongly with this premise. The purpose of tax is to finance the government. How the government uses those taxes depends on the government. But it's more of a political argument than a financial one. +1 for the rest of the answer, though. – D Stanley Sep 19 '18 at 13:40
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    Downvoted because the purpose of taxation is to finance the government, not"to re-balance wealth in the society". We could argue about whether such re-balancing is a desireable goal or not, but simple observation shows that current taxation seldom if ever does it, – jamesqf Sep 19 '18 at 17:13
  • @jamesqf well I guess I didn't put it clear, so it's my fault. Yes I agree the main purpose of tax is to finance the government, but wealth re-balancing seems more relevant to the OP's question. – kevin Sep 19 '18 at 17:16
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Many countries do this. It's called Pay-As-You-Earn (PAYE) in the United Kingdom and the majority of workers pay their taxes in this manner. There is a reconciliation process at year-end that does sometimes result in a rebate - care is taken to avoid a taxpayer paying too little and being subsequently presented with a bill they can't pay but it does happen.

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Broadly speaking, it's to spread the "tax burden" around so no one group feels unduly "picked on" in meeting a country's tax requirements.

Without getting into a debate on the rights and wrongs of taxation (and in particularly what level of services a country/state should provide, and what should be self-funded by the individual), the generally accepted position is that a country/government needs a certain amount of tax revenue each year to "make the country work". Taxes can come from a variety of sources (e.g. capital gains tax, corporation tax, income tax, sales tax/VAT etc.) but at the end of the day, a given amount of money needs to be raised.

Considering just corporation tax (tax on the profits of businesses) and income tax (tax on individuals' earnings), there are essentially three ways a government could raise £20,000 towards its tax requirements: tax the company only, tax the individual only, or tax both.

Grossly simplifying things, assuming the company makes £100,000 profit before wages, and an employee earns £40,000 "take home" per year...

Corporation Tax @ 33% / Income Tax 0%

After paying un-taxed wages of £40,000, the company has a taxable profit of £60,000, of which one-third goes in taxes (£20,000) and the company is left with £40,000.

Coporation Tax @ 0% / Income Tax @ 33%

The company pays pre-tax wages of £60,000, of which one third is paid by the employee in taxes (£20,000) and they get to keep £40,000. The company is left with £40,000 which isn't taxed.

Corporation Tax @ 20% / Income Tax @ 20%

The company pays pre-tax wages of £50,000, of which one fifth is paid by the employee in taxes (£10,000) and they get to keep £40,000. The company is left with £50,000 of which one fifth goes in taxes (£10,000) and £40,000 it can keep.

In all cases, the company is left with £40,000, the employee is left with £40,000 and the total taxes raised is £20,000. However, in the first case the company probably feels victimised (because only it pays taxes) and in the second case the employee feels victimised (because only he or she pays taxes). In the last case, while neither the employer nor the employee is probably "happy", at least they are both sharing the burden.

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The basic purpose of taxes is to incentivize behaviors (social engineering), and to either raise funds for public services (if the taxing authority is not a fiat currency issuer) or maintain demand for the currency and limit inflation (if it is). Making income taxes an explicit accounting item, rather than something passively "baked in" (which might be possible with a universal flat tax), gives much more flexibility in social engineering. People see exactly what they are paying in taxes and are motivated to find out how they can reduce it (e.g., charitable donations).

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  • Income taxes can't be "passively baked in" because someone has to pay them and that person will know about them. – user253751 Sep 19 '18 at 4:38
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    @not_a_comcast_employee I mean passive from the income earner's (OP's) viewpoint. A passive example would be US FICA taxes, which are mostly at flat rates. FICA is partly withheld by employers (considered as paid by employees) and partly paid by employers directly, but could with almost equal effect be paid entirely by employers, compensated by a salary adjustment. Most earners by far do not calculate or file anything related to FICA, and as a result it's much less salient to the public than the 1040 income tax. Many talk about "who pays taxes" and implicitly think of 1040 and neglect FICA. – nanoman Sep 19 '18 at 6:15

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