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Progressive taxation places the highest tax burden on those who earn the most money, aiming for tax fairness. It can work through income tax or sales tax, but some argue a flat tax system is fairer. However, a flat tax may be regressive and impose financial hardship on the poor.
Progressive taxation is a type of tax system designed to place the greatest tax burden on those who earn the most money. An opposing form of tax is regressive taxation, where those who earn (or spend) the least amount of money pay the highest taxes. The main reason for establishing progressive taxes is to achieve tax fairness, at least according to some. Theoretically, those who earn little should pay very little in taxes, while those who earn more should pay more.
There are several ways in which progressive taxation can work. In the US, the income tax paid per year by citizens is progressive. It is based on income levels, and as income levels rise, so do tax levels. It’s a complicated system where the next portion of income above a certain level is taxed at a higher percentage.
If the income tax for earnings above $200,000 (US$) is 30% while profit above $150,000 ($150,000) is 27%, then only the amount above $200,000 (US$ 200,000) will be taxed at 30%. If a person earned $250,000, only the $50,000 would be subject to the 30% tax, while the person would pay 27% of the rest. However, there are many ways to reduce taxes paid through various credits, which can reduce overall taxes, and this leads some to claim that progressive taxation does not exist in pure form in the US.
Another type of progressive taxation that can occur in countries is through various sales taxes. In theory, those who earn more spend more and therefore pay additional taxes. This again may not be true. Sometimes people are thrifty, even if they are rich, and they might not spend much more than a person who earns a lot less. Thus, a progressive sales tax may not actually be progressive and may instead shift more of the tax burden onto people with less money.
An often proposed alternative to progressive taxation is a flat rate. Some argue that this is a fairer way to impose taxes. For income tax under a flat tax system, everyone would pay the same percentage, perhaps 10 or 20% of their income. Many argue that a flat tax would actually be regressive or at least onerous for the poor, because people earning the lowest amounts would suffer much more from losing that portion of their income than people earning the highest amounts. Even if the flat tax system took less from the poorest person, that amount would still be harder to lose and impose financial hardship.
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