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Progressive taxation

Posted by admin on October 10, 2017 in Economics, Finance with No Comments


In the tax system, we distinguish regressive, progressive, and flat taxes. All of them add an extra charge to different products and services affecting different social layers. Regressive taxes put a higher burden on low-income individuals while progressive taxes charge the wealthy population in the first place. Imagine the excise duty on cigarettes or alcohol as well as the real estate property tax. They make certain goods less accessible to the low-income population while wealthy people could still afford all these things. On the other hand, the federal income tax puts extra liability on wealthy individuals. The estate taxes and other taxes on income and business profits charge individuals who exceeded certain wealth rate.
In the US, the progressive tax historically established as the fair way to charge people proportionately to their income. It looks fair that wealthy individuals capable of paying more to the government shall contribute more than those below the poverty level. But the system is rather complicated in action. The tax on the “excessive wealth” discourages people from earning more or induces them to push their wealth out of the reach of the federal agencies. Certainly, taxes would not stop people from striving for more in their business but it will push them in the shadow economy sooner or later.
The flat tax seems to be fair from every perspective. If the poor and the reach are charged equally, then none of them is discouraged from earning more. But even flat tax often puts an excessive burden to those living on the minimum salary.

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