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What is Progressive Taxation?

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  • Written By: Tricia Ellis-Christensen
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  • Last Modified Date: 21 August 2014
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Progressive taxation is a type of tax system that is designed to put the greatest tax burden on those who make the most money. An opposing form of tax is regressive taxation, where those who make (or spend) the least of amount of money pay the highest taxes. The main reason for establishing progressive taxes is to achieve fairness in taxation, at least according to some. Theoretically, those who make little should pay very little in taxes, while those who make more should pay more.

There are number of ways that 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 these 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 percent.

If income tax for incomes above $200,000 US Dollars (USD) stood at 30%, while income above $150,000 USD stood at 27%, only the amount made above $200,000 USD would be taxed at 30%. If a person made $250,000 USD, only the top $50,000 USD would be subject to the 30% tax, while the person would pay 27% on the rest. However, there are many ways to lower taxes paid through various credits, that can reduce overall tax, and this prompts some to claim that progressive taxation does not exist in pure form in the US.

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Another type of progressive taxation that may occur in countries is through various sales taxes. Theoretically those who make more will spend more, and thus pay additional taxes. This again may not be true. Sometimes people are thrifty, even if they’re wealthy, and they may not spend much more than a person who makes far less. Thus a progressive tax on sales can fail to be truly progressive and instead might shift more tax burden to people with less money.

One alternative that is frequently proposed for progressive taxation is a flat tax. It’s argued by some that this a fairer means of imposing taxes. For income tax in a flat tax system, all people would pay the same percentage, perhaps 10 or 20% of their income. There are many that argue that a flat tax would actually be regressive or at least burdensome to the poor, because people who make the lowest amounts would suffer far more by losing this portion of their income than would people who make the highest amounts. Even if the flat tax system took less from the poorer person, that amount taken still might be harder to lose and impose financial hardship.

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DutchEdwin
Post 5

The US income taxation system is not as unfair as you seem to think. The information on this site is incorrect. You pay a higher percentage only with income ABOVE the level it applies to. It's 10 percent on the first 18,000, 15 percent up to 69,000, etc. In other words, you do not get taxed by the same percentage over all of your income.

Also, I pay 33 percent over income from 0-18,945, 42 percent for 18945-56491 and 52 percent above 56,491. And would you believe taxes are going up next year?

To all of you equally, no matter whether you think you pay too much or not enough, consider yourselves lucky. Greetings from Holland

mutsy
Post 4

Latte31 - I agree with you. I would love to see the abolishment of the Internal Revenue Service but I don’t think it will ever happen because it is almost impossible to get rid of a government program once it starts.

The other problem with the flat tax is that it hurts the poor more than the wealthy. For example, if a poor person has to pay an 18% tax on a gallon of milk it might be a problem especially if they are living paycheck to paycheck but a wealthy person will pay that tax with no problem.

The tax levied will seem higher to the poor person than the wealthy person. This will be the argument which is why it would never pass but I do know that they are a lot of people talking about it.

latte31
Post 3

Cupcake15 - I could not agree more. I think that we need a fair tax. It could be a flat tax that everyone pays equally.

It could even be a consumption tax in which we are only charged tax when we buy the item. This way we get to keep our income and only get taxed on what we buy and tourist would also contribute when they buy something as well.

I am sure we could do a lot more with our money then the government can. Everything that the government runs is practically bankrupt. Look at Social Security and Medicare.

cupcake15
Post 2

Anon64830- I respect your opinion but I just want to add that 96% of federal income taxes are paid by the top 10% of Americans in the United States.

Therefore the wealthy are actually paying more than their fair share. In addition, 50% of the American population pays no federal income tax. You also have to realize that when you look at taxing the top ten percent, many of these people are business owners that will have to lay off workers in order to accommodate for the extra expenses.

In addition, some companies might pass on the extra tax expenses to their customers. Just look at banks and credit card companies. When additional regulations are passed by the Obama administration banks and credit card companies charge their customers more fees and higher interest rates in order to compensate for the added expense.

anon64830
Post 1

Would it not be more conscientious to provide for the elderly and less fortunate through legislation by congress, rather than to provide tax loop holes to accommodate the wealthy? I will omit the abundance of proof for brevity.

There are many ways remaining, after renovating the tax system, that the wealthy can continue there lifestyle. The have nots have very few choices.

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