WHAT ARE Stealth Taxes

Stealth taxes are a type of tax levy. Governments use stealth taxes to increase their revenues without raising the ire of taxpayers.

BREAKING DOWN Stealth Taxes

Stealth taxes are sometimes built into the prices of products so that consumers do not see how much tax they are paying. In comparison to income taxes and property taxes, stealth taxes are smaller and less visible. Because of their lower visibility they attract significantly less attention than income or property taxes. Governments find stealth taxes easier to collect than other types of taxes because the government collects them at the point of sale and they do not depend on a taxpayer’s income level. In addition to the implementation of new taxes or the raising of existing taxes, the term stealth taxes can also refer to the removal of existing tax breaks.

The most common stealth tax is the sales tax. Sales tax is a consumption tax imposed by the government on the sale of goods and services. The government levies a conventional sales tax at the point of sale. The retailer collects the tax and passes it on to the government. The government only charges conventional or retail sales taxes to the end user of a good or service. Different jurisdictions charge different sales taxes, which often overlap, as when states, counties, and municipalities each levy their own sales taxes.

Other Examples of Stealth Taxes

Value-Added Tax

The U.S. is one of the few developed countries where conventional sales taxes are still used. Most of the developed world uses value-added tax systems. More than 160 countries around the world use value-added taxation, and it is most commonly found in the European Union. These countries charge a percentage of the value added at every level of production of a good. The value-added tax taxes the company's gross margins, rather than just the end user. The main objective of incorporating the VAT is to eliminate tax on tax or double taxation which cascades from the manufacturing level to the consumption level.

Tobacco Tax

Imposed on all tobacco products by various levels of government to fund health care programs, the tobacco tax contributes to cancer research and smoking prevention and cessation programs. Federal and state governments impose a tax on all tobacco products. This makes the tobacco consumers responsible for paying the tax. Types of tobacco products include cigarettes, pipe tobacco, cigars, hookah/shisha tobacco, snuff, etc. The terms tobacco tax and cigarette tax are interchangeable.