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.
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.