A VPN connection can be tracked by the police or your employer. The police would need a search warrant to obtain logs from your VPN provider. Your employer can view your traffic at any time since you are connecting to their network.
Proxies are legal in the United States, the UK, and most countries. They are illegal in some places including China, Russia, North Korea, and Iran. This is due to the censorship of content they believe undermines the power of their government or cultural beliefs. Because a proxy server can bypass these restrictions, it could be used for illegal purposes.