Progressive taxes require those with higher incomes to pay a higher percentage of their income in taxes. The US, China, Japan, Australia, New Zealand, and the UK all use progressive taxation. Regressive taxes, such as sales taxes, require those with lower incomes to pay a higher percentage of their earnings in taxes.
A progressive tax is a type of income tax system that is set up so that people with a higher disposable income must pay a higher percentage of their income in tax than those with low to moderate purchasing power. Historically, progressive taxes have been supported by economists and political scientists ranging from Karl Marx to Adam Smith. However, the concept is not without its opponents. Libertarians, as well as some conservatives, believe that progressive taxes are a negative policy because they tend to lower the overall savings rate, encourage people to move to countries with tax policies that are more pro-rich, and discourage individuals from to work to earn money. higher income because they will be forced to pay more taxes.
In general, the tax system in the United States is classified as the use of progressive taxes. There are six tax brackets ranging from 10% to 35%, but the percentage of tax a person owes is only calculated based on each dollar that falls within a particular monetary range. Under this system, the top 10% taxpayers are responsible for generating nearly two-thirds of all income tax revenue. However, the tax system in the United States has been criticized as unfair because the tax cuts made in 2001 and 2003 essentially rewarded wealthy investors by reducing the tax burden on gains earned from investment income.
Since a progressive tax system tends to appeal to the average person’s sense of fairness, it should come as no surprise that most countries in the world use some form of progressive taxation. In China, the tax levels of the progressive tax system range from 5% for the poorest citizens to 45% for the country’s elite. In Japan, progressive taxes range from 5% to 40%. In Australia, tax brackets range from 0% to 45%. In New Zealand, citizens must pay between 19.5% and 49% of their income in tax. In the UK, progressive taxes range from 20% to 40% of a person’s taxable income.
Regressive taxes are the opposite of progressive taxes. Although a regressive tax appears to be a flat tax at first glance, this system is set up so that people with lower incomes pay a higher percentage of their earnings in tax. Sales taxes in the United States are an example of a regressive tax, as poorer people are forced to pay a higher percentage of their income in taxes for clothing, transportation, and other daily essentials.
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