Progressive tax
A progressive tax is a tax system where individuals with higher incomes pay a larger percentage of their earnings compared to those with lower incomes. This approach is based on the principle that those who have greater financial resources can afford to contribute more to government revenue, which in turn funds various public services and programs. One of the most common forms of progressive tax is the progressive income tax, where tax rates increase with income levels; for example, lower earners might pay 10%, while higher earners could pay 30% or more.
In the United States, the federal income tax exemplifies this system and has been in place since the early 20th century, with rates varying from 10% to 39.6% depending on income brackets. Supporters of progressive taxes argue that they promote equity and enable the government to support essential services for all citizens, particularly for the economically disadvantaged. Conversely, critics often view progressive taxes as unfair, arguing that they resemble wealth redistribution and can discourage higher earners from working more. Alternatives like flat taxes, where all earners pay the same percentage, are popular among those who prefer a simpler tax structure. Additionally, discussions about implementing a progressive consumption tax are ongoing, which would shift the tax focus from earnings to spending.
Progressive tax
A progressive tax is a tax that requires individuals with higher income to pay taxes at a higher percentage than those with lower income. Taxes are used to fund the government and its programs and services. The idea behind progressive tax is that people with higher incomes can afford to pay a higher percentage of their earnings than people with lower incomes.
One popular type of progressive tax is a progressive income tax. An income tax is a tax on the money a person earns while working. If a government requires a progressive income tax, a person in the bottom one-third of earners in the country might pay 10 percent in taxes. A person in the middle one-third of earners might pay 20 percent in taxes. A person in the highest one-third of earners might pay 30 percent in taxes. The United States federal income tax is one example of a progressive tax.
Pros and Cons
People who are opposed to progressive taxation often compare it to wealth redistribution or socialism (an economic system in which the production and distribution of goods is controlled by the government). Detractors claim that wealth redistribution could continue endlessly because the highest earners will always be more financially viable than the lowest earners. On the other hand, people who support progressive taxes claim they do not want everyone to have the same amount of wealth, but they do want all people to have the ability to meet basic needs.
Opponents of progressive taxes argue that these taxes are inherently unfair because they demand more from those who earn more. These individuals often argue that progressive taxes, such as the federal income tax of the United States, should be changed to flat taxes. Flat tax rates set taxes at a certain percentage, and all earners pay the same percentage. In this scheme, earners across income brackets would pay the same percentage of earnings in taxes. The idea of flat tax is popular among political conservatives. These are the people who usually believe the government should spend less money overall and generally oppose government-run social programs that benefit the poor.
People who support progressive taxes argue that they are fair because people who earn more money can more easily pay more tax. People who support progressive taxes are usually in favor of government spending. These individuals share a socially liberal viewpoint that the government has a responsibility to provide different social programs that benefit all, but especially the poorest members of the population.
United States Federal Income Tax
The United States federal income tax is a progressive tax. This tax has its origins in the 1860s, when the government levied income to help fund the Civil War. However, the income tax as it is known in modern times has its roots in 1913, with the ratification of the Sixteenth Amendment to the U.S. Constitution. This amendment granted Congress the power to tax the income of American citizens. In 2016, Americans paid between 10 to 39.6 percent of their earnings in federal income tax, depending on their marital status and income bracket.
Even though the progressive tax rate exists, the actual amount that people pay in income tax in the United States varies depending on many factors, such as the amount they contribute to charity, the amount paid in some types of debt, and so on. The tax structure of the United States is incredibly complex.
Another well-known progressive tax in the United States is the estate tax, or inheritance tax. This is a tax the government collects when a person inherits money through someone else’s death. The estate tax is the most progressive tax in the United States government, and it increases as the value of the estate increases. In 2016, the highest estate tax bracket in the United States was 40 percent.
Progressive Consumption Tax
Some experts, including certain economists, believe that the United States and other high-wealth countries should consider the adoption of a progressive consumption tax in place of a progressive income tax. Unlike a progressive income tax, the consumption tax would be paid on money spent rather than money earned. It could be levied at the point of sale for purchases.
Supporters believe this type of tax would be more fair to citizens. They say that taxing earnings makes an individual less likely to work, whereas taxing spending makes an individual more likely to work to increase earnings, and less likely to spend.
Nevertheless, critics say that a progressive consumption tax is no improvement over a progressive income tax. They believe such a tax would significantly slow economic growth by discouraging spending. These critics claim that spending levels must remain steady in order to maintain a healthy economy.
Bibliography
"Distribution: Are Federal Taxes Progressive?" Tax Policy Center. Urban Institute and Brookings Institution. Web. 3 Mar 2016. http://www.taxpolicycenter.org/briefing-book/background/distribution/progressive-taxes.cfm
Frankel, Matthew. "2016 Estate Tax Rates." The Motley Fool. Web. 3 Mar 2016. http://www.fool.com/retirement/general/2015/12/18/2016-estate-tax-rates.aspx
"Progressive Taxes." Internal Revenue Service, U.S. Department of Treasury. Web. 3 Mar 2016. https://apps.irs.gov/app/understandingTaxes/student/whys‗thm03‗les03.jsp
Pomerleau, Kyle. "2016 Tax Brackets." The Tax Foundation. 14 Oct 2015. Web. 3 Mar 2016. http://taxfoundation.org/article/2016-tax-brackets
"Progressive and Regressive Tax Systems." Texas Politics Project, University of Texas. Web. 3 Mar 2016. https://texaspolitics.utexas.edu/archive/html/pec/features/0400‗01/slide3.html
"Progressive Tax." Investorwords.com. WebFinance, Inc. Web. 3 Mar 2016. http://www.investorwords.com/3892/progressive‗tax.html
Shlaes, Amity. "Why the Flat Tax Is More Popular Than Ever." Time. Time, Inc. 10 Nov 2015. Web. 3 Mar 2016. http://time.com/4107231/flat-tax/
Terrell, Ellen. "History of the US Income Tax." U.S. Library of Congress. 2012. Web. 3 Mar 2016. https://www.loc.gov/rr/business/hottopic/irs‗history.html
Worstall, Tim. "Bill Gates Points to the Best Tax System, the Progressive Consumption Tax." Forbes. Forbes.com, LLC. 18 Mar 2014. Web. 3 Mar 2016. http://www.forbes.com/sites/timworstall/2014/03/18/bill-gates-points-to-the-best-tax-system-the-progressive-consumption-tax/#2ffdc87cdec6