A direct tax is levied on individuals and organizations and cannot be shifted to another payer. Often with a direct tax, such as the personal income tax, tax rates increase as the taxpayer’s ability to pay increases, resulting in what’s called a progressive tax.
Examples of a Direct Tax
Direct taxes include:
Direct Taxes and Sound Tax Policy
Tax Foundation’s Principles of Sound Tax Policy are simplicity, transparency, neutrality, and stability. These principles should serve as touchstones for policymakers and taxpayers everywhere.
Direct taxation is often less simple than indirect taxation, as it’s typical for the rate of direct taxes to vary from person to person. These taxes, like many, can lack stability as lawmakers adjust rates frequently as part of campaign promises or to pay for new policies.
Transparency of direct taxes depends on the type of tax levied. For example, income taxes tend to be straightforward in what must be paid and when it must be paid, whereas capital gains taxes can be a more complex tax burden.Share