DEFINITION of 'Surtax'

A tax levied on top of another tax. A surtax can be calculated as a percentage of a certain amount or it can be a flat dollar amount. A surtax is generally assessed to fund a specific government program, whereas regular income or sales taxes are used to fund a variety of programs. Thus, one unique feature of a surtax is that it allows taxpayers to more easily see how much money the government is collecting and spending for a particular program.

BREAKING DOWN 'Surtax'

For example, in 1968, President Johnson enacted a 10% surtax on individual and corporate income to help pay for the cost of fighting the Vietnam War. While most taxpayers probably did not know what percentage of their tax dollars were going toward military spending, they could easily see how much extra money they were being asked to contribute specifically to the war effort.

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