Progressive Tax Structure
A progressive taxation structure is one that imposes a lower tax rate on low-income earn compare to higher-income earners. The rationale behind this is that people who have a lower income will be able to spend a greater percentage of their income to maintain their standard of living instead of paying hefty taxes. Those who are richer can typically afford the basic necessities in life and therefore they can be subject to higher tax rates. The tax system of the United States is basically considering a progressive nature.
Now coming to the degree to how progressive a tax structure can be, it depends completely on how quickly the tax rates rise in relation to the increases in income. For instance, if one tax code has a very low rate of only 10% and a high rate of a maximum of 30%, and another tax code has income tax rates which range from 10% to 80%, then it is the latter one which will consider is more progressive.
Advantages of a Progressive Tax Structure
A progressive tax system has a lot of advantages. One of the primary ones being the fact that progressive tax systems happen to significantly reduce the tax-related burdens on people who can barely afford to pay them. In such cases, these systems leave a lot more money in the pockets of low-wage earners. Which in turn gives them a bit for breathing room for spending on necessities.
Secondly, progressive tax structures or systems are also able to collect more taxes than flat or regressive tax systems. This is because of the fact that in a progressive tax system, the tax rates index tends to increase as income happens to climb steadily. Lastly, progressive taxes allow people who have the greatest amount of resources available to fund a great portion of public services on which all the citizens and business relies on. These are things such as roads, first responders, snow removal, and so on.
As of right now, the tax system in the United States happened to be signed into law in December 2017. It went into effect as of January 2018 and has 7 varied tax rates or tax brackets that are based upon income and the filing status. These tax rates are the following: 10%, 12%, 22%, 24%, 32%, 35%, and lastly 37%.
Disadvantages of a Progressive Tax Structure
Like two sides of a coin, there happens to exist some disadvantages of the progressive tax system as well. Many critics of progressive tax structure have repeatedly considered it to be extremely discriminatory in nature against the high-income earners or wealthy people in general. Its believed by these critics this tax system is only an effective means of income redistribution. This is based on the fallacy that most taxes are only used to fund programs related to social welfare. Where it is very well-known that only a small portion of government spending is devoted to welfare payments.
This brings us to the end of our discussion on progressive taxation. Now, let us know your thoughts on the subject.
