Progressive Tax Debate

History and Debate of Progressive Tax

A system based on a progressive tax collects tax revenue from individuals in proportion to their ability to pay. Citizens with higher earnings are taxed at a higher rate, while poorer people pay a lower percentage of their income in tax. In other words, the tax rate progresses from lower to higher. Progressive tax can be implemented by selective taxation, tax credits or other adjustments, and it can also be modified by other factors in a nation's tax system, but most commonly the term refers to a tiered income tax that shifts more of the revenue burden onto the wealthy.

Proponents of Progressive Taxation

Progressive taxation is widely supported by experts in economics and political science from many different theoretical camps; in the United States and Europe, the majority of authorities supports a progressive tax and advance many arguments for it. For example, they say that progressive tax gives a government more revenue while also enhancing opportunity for its lower and middle class citizens. Without progressive taxes, there would be a risk of all wealth being concentrated in the hands of a few people. As income increases, households have more and more income that is not spent on basic necessities and thus can afford to pay more tax in a way that is impossible for the poor.

Other proponents in the progressive tax debate argue that the wealthy should pay more tax based on their alleged higher interest in making sure existing social structures are maintained, such as private property rights and national defense, because they have so much more to lose than lower-income households should revenue to maintain these structures be scarce. Progressive taxes are also said to increase the incentive to earn more, since more overall income is necessary to reach one's ultimate income goals if a higher proportion is paid in tax. Finally, a progressive tax works to reduce inequality of income and thus prevent social stratification that can be harmful to a country.

Opponents of Progressive Taxation

However, progressive taxation has its critics. They argue first that the system violates the basic principle that all people are equal under the law, since it treats the poor and the wealthy differently. Another objection to progressive taxes is that they create unfair representation; if for example 10% of the population is funding 60% of the tax base of a country, they still receive only 10% representation in the government since paying more tax does not earn more voting power. Progressive taxes have also been demonstrated to lower overall savings rates, a situation that most countries wish to avoid.

Opponents further advance the argument that high progressive taxes motivate the wealthy to find loopholes, shelter income and even move out of the country, thus depriving it of talented workers and creating inefficient tax-avoidance work for lawyers and accountants that do not end up benefiting the whole country. At least some studies suggest, as well, that progressive taxes actually fail at their goal of decreasing income inequality in real terms. Finally, since there are a number of different formulas that are used to calculate a progressive tax and a number of different deductions and credits that are used to offset taxes, critics frequently argue that the progressive system is simply too complex and point out that a flat tax would save money and time for all.

Nevertheless, most nations around the world have some form of progression in their tax codes. The United States, for example, currently collects revenue based on six tax brackets ranging from 10% to 35% of individual taxable income.

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