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Which Countries Use Progressive Taxes?

A monument honoring Adam Smith, who supported progressive taxes.
The U.S. tax system is classified as using progressive taxation principles, through the use of brackets based on level of income.
Sculpture of Karl Marx (foreground), a supporter of progressive taxes; and Friedrich Engels.
China has a progressive tax.
The US has a progressive income tax.
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  • Written By: Dana Hinders
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 July 2014
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A progressive tax is a type of income tax system that is set up so people with a higher disposable income must pay a larger percentage of their income in taxes than those with low to moderate earning power. Historically, progressive taxation has 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 taxation is a negative policy because it tends to lower the overall savings rate, encourage people to move to countries with tax policies that are more favorable to the wealthy, and discourage people from working to earn higher incomes because they will be forced to pay more taxes.

Overall, the tax system in the United States is classified as using 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% of tax payers are responsible for generating almost two-thirds of all income tax revenue. However, the tax system in the United States has been criticized as unfair because tax cuts made in 2001 and 2003 essentially rewarded wealthy investors by reducing the tax burden on earnings made from investment income.

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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 throughout the world use some form of progressive taxation. In China, the tax brackets under 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 taxes. In the United Kingdom, 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 are paying a higher percentage of their earnings in taxes. Sales taxes in the United States are one example of a regressive tax, since poorer individuals are forced to pay a higher percentage of their income in taxes for clothing, transportation, and other daily essentials.

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Discuss this Article

somerset
Post 9

anon327733 - When people talk about taxes it is understood to mean state and federal income taxes, not sale taxes. Everybody pays sales tax because it is imposed at the point of sale, but many people do not pay any state or federal taxes.

So basically some people are supposed to, or forced to subsidize others. Would you say that this is a fairtax?

If you want to talk about percentages, you have to include all the taxes that the rich pay versus all the taxes that the poor pay, than compare the numbers.

anon327733
Post 8

In my state, like most states, a person making the poverty level (eating massive FICA and state taxes) or on a fixed social security income (2 percent increases during 8 percent inflation) pays a higher percentage of sales and other taxes like excise than the very wealthy -- up to four times as much on a percentage basis. Anybody who makes a blanket statement that most Americans people pay no tax is simply a business or wealthy person paid blogger spreading lies.

anon316454
Post 7

Let me give an example of how our government gives away to the very wealthy.

When a new spectrum is put into use, it is sold at a discount to a buyer and everyone else gets 0 spectrum and arguably a fraction of the sales prices (there are 300 million citizens).

Instead, the government (who is essentially our contract with each other) could give each person local control over, say 20 minutes on one station, a piece (whatever number works out to cover the local population getting slices of all possible channels for 24 hour period daily or weekly etc). That person would then control that slot. They would have profit rights off that slot. They could lease that slot to Giant Media Conglomerate or directly to those wanting to add commercials or programming.

Now, whether that system is efficient or not (and possibly could be made efficient thanks to computers and open source software), the point remains that we had our fractional share and fractional negotiation yanked and then given to a tiny minority of buyers. It's like most government auctions; the mere fact it's an auction where they must sell and where the buyers are few in number and competition, means the buyers get a good deal. If the parcels were smaller so that many more buyers could participate, the take by the government would be greater.

The government is short-changing us left and right. Our leverage in America is constantly ripped from under us to give to, by definition almost, a very wealthy person to control and use as leverage for profit as they see fit while the rest of us get little in return.

anon316445
Post 6

A flat (income) tax is unjust to most competitors, i.e., to most citizens. It promotes wealth and begets wealth, rather than hard work begets wealth. Without some negative feedback, we end up with Monopoly the board game, where as you get wealthier, your leverage increases. making it easier to get even more wealthy -- which ends the game, but which would destroy the fun of it if every new game (every new year) everyone had to start in the place they left off -- as people are forced to do in real life.

A failure to curtail wealth that begets wealth over time leads to relatively few very powerful proprietors that have huge advantages over the lives of most people because of that vast leverage their growing wealth gives: a feed-forward system, where all else being about equal, the more you have the easier and with lower risk you can make more, leading to even more leverage, etc.

The US lacks a wealth tax (at the federal level). A progressive income tax is a substitute for that, but it can't replace a wealth tax. Wealth is private sector leverage, thanks to the government Uncle Sam. Do those with more wealth pay higher taxes on that private sector leverage and power the government makes possible? This existing unfair system would contrast with a scenario where everyone believes they should have equal access to land and to many other forms of wealth at some point in their lives, for example, an initial split of US currency as you might see in Monopoly at the beginning of the game -- the only time that game is fair -- or otherwise, that they own an equal part share in all resources at least until another person negotiates directly with them.

Can we imagine how costly it would be for Romney to hold significant amounts of real estate against the other 300 million negotiating citizens? This service that gives some exclusive control over vast resources that were either natural in existence or were created by others (workers or factories themselves created by workers or by robots that were created by workers, etc) is something that fairness dictates should be taxed. This privilege and opportunity costs to every other citizen does not happen for free; why should the majority of workers with little leverage and hence undervalued wages subsidize this power that we give to the privileged (mega) proprietors aggregating, re-leveraging, and aggregating some more?

With a wealth tax, idle resources would be sold or put into use, moving resources into more efficient uses and into production. This would fight unemployment. This would give ordinary people (especially new and small entrepreneurs) extra leverage that the government otherwise takes from them and gives to the very wealthy. With this leverage incomes would rise for those doing the majority of the work. With this leverage, a person would be allowed to feed themselves rather than depend on the blessings of land owners.

Hard work should beget wealth. Isn't the the American Way, rather than wealth begets wealth? Shouldn't our rules charge proper fees to leverage and power (e.g., to wealth backed by the US government, a stable US dollar and society, streamlined title ownership structure, etc)?

Let me ask explicitly: Is it a fair playing field in determining wages if one group year after year starts off with a very strong hand? Is that balanced gaming? Is that fair? Would you bother to play Monopoly if one player (the "top 20 percent") always started off owning 85 percent of the properties and 85 percent of the bank money?

Is it fair to young kids who, rather than have $1 million earning interest for them from birth and lots of advice and opportunities to make mistakes and recover, instead have little good business advice or just plain bad advice and weak role models, weak access and few resources and opportunities to make mistakes and learn? Does this imbalance from birth or from year to year lead to anything but very unfair competition and the consequent movement of wealth into fewer hands?

Why don't we have a wealth tax? Why does the government "borrow" the US debt from already wealthy folks and maintain title to property that accumulates across generations in few hands instead of giving every new baby citizen a fair playing field and creating money in a controlled fashion without going into debt?

And why does the US give up so much land to private ownership instead of leasing -- a practice in the private sector which is a more lucrative proposition that would give citizen-shareholders a better return on their citizenship and natural rights in equal parts to resources?

Do we really want a few people pulling the strings and not paying a fee for that vast power from our public Uncle Sam? Is that fair that we can't contest title rights (and native Americans got run over, remember) or get an even break when we are born? Why would I as a voter support a playing field that is lopsided in favor of whoever happens to be very wealthy at a given point in time?

A progressive income tax system will hopefully be improved to include a wealth tax. Those empowered by our government should pay a fee for that service and as compensation to all the rest of us losing access and leverage.

A fair playing field would lead to a lot more proprietors and to a path to making money that would allow common workers and small business owners a fair shot against the largest proprietors. Until we fix the playing field, we will continue to have many who work little and make gazillions while most do the vast majority of the work, under-paid (since Uncle Sam took away most leverage), and yielding their contribution to profits to the proprietor with the upper hand.

A fair playing field means more job creators, more upward mobility, more disposable income spread across the population. This is closer to a fair free market if we accept that the public military, courts, and infrastructure do add value to those controlling wealth. The government is our contract with each other. Shouldn't our contract stipulate that fair fees be charged for anyone endowed with particularly large power against the rest of us?

We can easily avoid most socialism, but we do want fair fees so that wages reflect hard work and skill in some proportionally manner rather than be so skewed towards those pulling strings thanks to their huge supply-demand advantages over most wealth and resources needed. We should give all babies a fair playing field, for none did anything greater than any other before they were born. We should not subsidize the very wealthy families who then pass on that subsidy to a very few (their kids, for example). Even in a broken game like Monopoly, at least for one second at the beginning of each game, the playing field is level. We should and can do better in real life.

So when people press for flat income taxes, remind them that we need to go in the other direction and actually start charging fees for the power given by our government, on behalf of the rest of us and subsidized by us, to those who have the most wealth already.

anon242678
Post 5

When I pay 9.25 percent sales tax and 6.2 percent Social Security tax, no matter how low my federal withholding is, it is unfair to claim my income is not taxed.

GreenWeaver
Post 4

Sunny27-I think for the most part that that is true but there is another opinion on this type of tax.

Opponents of this idea say that it places an undue burden on the poor because a wealthy person and a poor person pay the same amount of dollars as they would in a sales tax.

It is much easier opponents say for the wealthy to pay the tax imposed, but a poorer person might have difficulty. For example, if the flat tax was imposed and it was 20% and both a wealthy and a poor person were looking to buy $100 in groceries, both people would even up paying $120 instead of the $100.

The extra $20 represents a higher portion of the poorer person’s income and makes it more burdensome. In addition, many industries like the automotive and real estate industries would be negatively affected because the costs would rise so high that many people would not be able to afford a new car or home.

I am really against progressive taxing and see the progressive vs. regressive tax debate is not much of a debate. I prefer a regressive tax such as a flat tax.

Sunny27
Post 3

BrickBack-I agree. That is exactly what happened in New York and Maryland. The taxes were raised so high that more people got laid off because business owners had to reduce costs to offset these additional expenses.

Since these people were no longer paying taxes the tax revenue shrunk. In addition, many of the wealthy moved out of the state and moved to states that were more tax friendly like Florida and Texas. I think that a regressive tax is a good idea.

A regressive tax such as a flat tax is actually something that has been talked about recently by many libertarians. The flat tax would be a consumption tax that would be levied on all goods and services, but it would replace the entire internal revenue code.

Many proponents of this tax feel that it would actually bring in more tax revenue than a regular progressive tax and it would be fair because the percentage is the same. People feel that the tax code is so complicated and many welcome an easier way to process taxes.

Also, foreign travelers would also pay into these taxes because they would contribute every time that they purchased a good or service.

BrickBack
Post 2

Anon21957-That is a good question. I know that while many European countries have a progressive tax system many also levy a regressive tax as a form of a flat tax in order to pay for the costs of their socialized medicine.

Progressive taxing while on the surface seems fair because the more you make the more you should pay, however this taxing system also has significant flaws.

First about 50% of Americans are exempt from paying taxes, in addition the top 1% of taxpayers pay 90% of the taxes. These are the main progressive tax group complaints.

All Americans should pay their share of the tax burden. The higher the taxes on the rich the more likely that they will send their money elsewhere and those that have businesses might lay off workers to reduce expenses.

The progressive income tax punishes the wealthy and if the taxes are high enough as they were in the 70’s where the top tax bracket was 70% gives people less incentives to actually work because three quarters of their money go to government programs.

anon21957
Post 1

what countries are using regressive tax system?

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