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What is a Progressive Tax?

Multi-million dollar mansions generally will have a luxury tax added to their basic estate tax in many European countries.
The US has a progressive income tax.
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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 17 June 2014
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A progressive tax is a tax rate applied to either income or profits, or spending, that increases as income/profits, or spending increases. This is the tax system used in the US, and in many other countries. Those who make the least amount of money tend to pay the lowest percentage of their income in taxes. People who make larger amounts of money are taxed at a higher percentage.

Taxation in most countries, including the US, is slightly more difficult to compute. Many misunderstand the progressive tax rate as the following formula: Mr. X who makes $20,000 US Dollars (USD) will pay 10% of his income in taxes. Mr. Y makes $40,000 USD and will pay 15% of his income. Ms. Z makes $60,000 USD and will pay 20% of her income in taxes.

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Instead, taxes on amounts made increase progressively. My. Y would pay 10% on the first $20,000 USD he makes, 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 reduce taxation percentage. If you are marrying and filing a joint tax return, or if you have a number of dependents to support, progressive tax percentages would diminish because less of your money would be actually considered taxable income. The lowest incomes, especially those below the poverty level would owe very little in actual taxes. Businesses that lose money during a year instead of making profits would probably not owe taxes either.

The progressive tax may be applied to certain types of spending. Any sales tax may remain at a stable amount, but a person who spends more of their income on taxable goods will be proportionately be spending a higher amount of their income on sales tax, even though the sales tax percentage is the same for everyone. Further, some items, like yachts and luxury cars, are subject to luxury taxes, which are much higher percentages of tax for these items.

There are many people who support progressive tax, since they feel it is only fair that those who make more should contribute more to the government. Those who make the least, and can’t really afford to lose their income to taxes shouldn’t be spending much to fund government programs. Not all people agree with progressive tax, since it means that people who make more 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 on income.

Others favor a regressive tax, where percentage of taxes decreases when income increases. This would mean people who make the most would pay a much lower percentage in taxes, but since their income is high, they’d still pay quite a bit in taxes. People who make the least would pay the highest percentages, though allowances might still be made for those under the poverty level. This system would purportedly mean everyone would pay about the same amount in taxes each year. Critics of the regressive tax system suggest this would be an unfair burden on those least able to afford taxes.

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anon939558
Post 6

The progressive tax may be applied to certain types of spending. Any sales tax may remain at a stable amount, but a person who spends more of their income on taxable goods will be proportionately be spending a higher amount of their income on sales tax, even though the sales tax percentage is the same for everyone. Further, some items, like yachts and luxury cars, are subject to luxury taxes, which are much higher percentages of tax for these items.

mutsy
Post 3

Crispety-I disagree with the progressive tax. I agree with the opponents who feel that the only fair tax would be the flat tax.

The flat tax would be a consumption tax so everyone that buys something will have to pay that percentage.

Opponents to the flat tax say that it burdens the poor because a wealthy person will easily be able to pay the tax, but a poor person would struggle with it.

Also, those in the industries that sell big ticket items like the real estate and automotive sectors would suffer because the prices would be prohibitive for many consumers.

Crispety
Post 2

The progressive income tax definition means that the more you earn the higher the percentage of taxes that you will pay. Taxes are based or federal tax brackets with the highest being 33%.

The progressive tax pros and cons differ according to who you talk to. Some in favor of progressive taxing say that it only fair,so the more you earn the more you should be taxed.

The progressive tax group complaints state that it is not fair because it punishes successful people that pay 90% of the taxes. In addition, they state that about 50% of Americans pay no taxes at all.

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