A progressive tax is a tax system used in many countries, including the US, where those who earn more pay a higher percentage of their income in taxes. The tax rate increases as income increases, but there are ways to lower the percentage. Some people support it as fair, while others propose a flat or regressive tax system.
A progressive tax is a tax rate applied to income or profit, or expense, that increases as income/profit or expense increases. This is the tax system used in the United States and many other countries. Those who earn the least amount of money tend to pay the lowest percentage of their income in taxes. People who make large amounts of money are taxed at a higher percentage.
Taxes in most countries, including the US, are a bit more difficult to calculate. Many misinterpret the progressive tax rate as the following formula: Mr. X who earns $20,000 US Dollars (USD) will pay 10% of his income in taxes. Mr. Y earns $40,000 USD and you will pay 15% of his income. Mrs. Z earns $60,000 USD and will pay 20% of her income in taxes.
Instead, the taxes on the amounts realized increase progressively. My. And you would pay 10% on the first $20,000 you earn, and 15% on the second $20,000. Ms. Z would pay 10% on the first $20,000, 15% on the second, and 20% on the third. There are also a number of things that can lower the tax percentage. If you get married and file a joint tax return, or have a number of dependents to support, the progressive tax rates would decrease because less of your money would actually count as taxable income. The lowest incomes, especially those below the poverty level, should owe very little in real taxes. Businesses that lose money for a year instead of making a profit probably shouldn’t be taxed either.
The progressive tax may be applied to certain types of expenses. Any sales tax may remain a stable amount, but a person who spends more of their income on taxable goods will be spending proportionately more of their income on sales tax, even though the percentage of sales tax sales is the same for everyone. Also, some items, such as yachts and luxury cars, are subject to luxury taxes, which are much higher tax percentages for these items.
There are many people who support progressive taxation, as they believe it is fair for higher earners to contribute more to the government. Those who make less and really can’t afford to lose their income to taxes shouldn’t spend much to fund government programs. Not everyone agrees with the progressive tax, as it means that the people who make the most money are “punished” for their success or wealth. Some propose a flat tax rate instead of a progressive tax, or a tax on spending instead of income.
Others favor a regressive tax, where the tax rate decreases as income increases. This would mean that the people who get the most would pay a much lower percentage in taxes, but since their incomes are high, they would still pay quite a bit in taxes. People who earn less would pay the highest percentages, although people below the poverty level could still be taken into account. This system would supposedly mean that everyone would pay approximately the same amount in taxes each year. Critics of the regressive tax system suggest this would place an unfair burden on those least able to pay taxes.
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