You don't have to accept every job offer that comes along, but you should be polite in your dealings in the professional world. The company you're not too keen on today could play host to your dream job in the future... So be careful how you turn down an offer. Rejections of job offers should always be made over the phone or in person. That said, let's review a few different scenarios and the correct responses:
Scenario A: Pay too low
So you've been offered a position that you would be interested in, but all in, it just doesn't pay enough to make it worth your while. You've tried to negotiate the offer, but the offering company won't budge.
Any references to the company being "cheap" or to yourself being "worth more". This just creates a negative impression of you - that you're only after money. If you are being interviewed in a small industry, you might be surprised that your interviewer speaks to people you might consider employees of "competitors" of the company. Word can travel very quickly, so beware.
"Thank you very much for the offer, but I'm afraid I'm looking for something in a higher salary range. If something comes up more in the range of ________, I would be very pleased if you would consider me. Thank you again for the opportunity to come in and meet with you, and I wish you all the best in finding your ideal candidate."
Scenario B: Wrong level
In this case, the position you've been offered is either too junior or too senior for you.
Whining about being over or underqualified. Realistically... no one cares.
Too senior - "I'm flattered that you have chosen me, however I would like to have more experience under my belt before I undertake the position offered."
Too junior - "Although this is exactly the type of work I'm looking for, I was hoping for more responsibility."
Once again, end your conversation by thanking the company's representative for considering you, and ask them to keep your resume on file.
Scenario C: Didn't like either the company or the type of work
Sometimes a job looks "perfect" on paper, and then when you learn more about it, you come to realize it really isn't for you.
Bad-mouthing or criticizing the company. Who are you to complain? You don't work there. Besides you never know what job opportunities might open up there in the future.
"Thank you so much for the offer, but I don't think I'm a great fit for your company. I am looking for a slightly different work environment, and I'd like to hold out for that. I really appreciate the offer."
In this case, if you have developed any sort of comfortable relationship with the person you are speaking to (which is possible if you have had multiple interviews, for example), you may want to ask if they have any colleagues to whom they might forward on your resume. Don't be afraid to ask this... all they can say is "no".
Scenario D: Received a better offer
This is the best scenario to be in. If you've received more than one offer and you feel that you would do better by accepting one over the other, then honesty is the best policy.
"XYZ Company is far better than yours because they've offered me more vacation time"
"Unfortunately, I have to decline at this time as I'm accepting another offer that I think is best for me."
Sometimes, a polite rejection such as this will prompt renegotiations and you may be able to play one job offer against the other. (That's business for you!)
In summary, protect your reputation and don't burn bridges by maintaining professionalism in rejecting job offers.