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A progressive tax is a
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
in which the
tax rate In a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements th ...
increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progressive'' refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's
marginal tax rate In a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements th ...
.Hyman, David M. (1990) ''Public Finance: A Contemporary Application of Theory to Policy'', 3rd, Dryden Press: Chicago, ILJames, Simon (1998) ''A Dictionary of Taxation'', Edgar Elgar Publishing Limited: Northampton, MA The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the
tax incidence In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant l ...
of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a
regressive tax A regressive tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law, a legal person is any person A person (plural people or persons) is a being that has ...
, such as a sales tax, where the poor pay a larger proportion of their income compared to the rich. The term is frequently applied in reference to personal
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
es, in which people with lower
income In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a bas ...
pay a lower percentage of that income in tax than do those with higher income. It can also apply to adjustments of the tax base by using
tax exemption Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduc ...
s,
tax credits A tax credit is a tax incentive A tax incentive is an aspect of a country's tax code Tax law or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments (as in the ca ...
, or selective taxation that creates progressive distribution effects. For example, a
wealth Wealth is the abundance of valuable financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), bank deposits, bond (finance), bonds, and participations in companies' sh ...
or
property tax A property tax or millage rate is an ad valorem tax An ''ad valorem'' tax (Latin language, Latin for "according to value") is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a ...
, a sales tax on
luxury good In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant ...
s, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.: The luxury tax is a progressive tax – it takes more from the wealthy than from the poor.Luxury tax – Britannica Online Encyclopedia
: Excise levy on goods or services considered to be luxuries rather than necessities. Modern examples are taxes on jewelry and perfume. Luxury taxes may be levied with the intent of taxing the rich...
Clothing Exemptions and Sales Tax Regressivity
By Jeffrey M. Schaefer,
The American Economic Review ''The American Economic Review'' is a monthly peer review, peer-reviewed academic journal published by the American Economic Association. First published in 1911, it is considered one of the most prestigious and highly distinguished journals in the ...
, Vol. 59, No. 4, Part 1 (Sep., 1969), pp. 596–599
Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher
income inequality There are wide varieties of economic inequality, most notably measured using the distribution of incomeIn economics Economics () is the social science that studies how people interact with value; in particular, the Production (econom ...
, as the tax structure reduces inequality,Moyes, P
A note on minimally progressive taxation and absolute income inequality
Social Choice and Welfare, Volume 5, Numbers 2-3 (1988), 227–234, DOI: 10.1007/BF00735763. Accessed: 19 May 2012.
but economists disagree on the tax policy's economic and long-term effects.Piketty, Thomas, and Emmanuel Saez
"Income Inequality in the United States, 1913–1998"
Tech. 1st ed. Vol. CXVIII. ''Quarterly Journal of Economics'', 2003.
One study suggests progressive taxation can be positively associated with
happiness The term ''happiness'' is used in the context of Mental health, mental or emotional states, including positive or Pleasure, pleasant emotions ranging from contentment to intense joy. It is also used in the context of life satisfaction, subj ...

happiness
, the subjective well-being of nations and citizen satisfaction with
public goods In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pla ...
, such as education and transportation.


Early examples

In the early days of the
Roman Republic The Roman Republic ( la, Rēs pūblica Rōmāna ) was a state of the classical Roman civilization, run through public In public relations Public relations (PR) is the practice of managing and disseminating information from an indiv ...
, public taxes consisted of assessments on owned wealth and property. For Roman citizens, the tax rate under normal circumstances was 1% of property value, and could sometimes climb as high as 3% in situations such as war. These taxes were levied against land, homes and other real estate, slaves, animals, personal items and monetary wealth. By 167 BC, Rome no longer needed to levy a tax against its citizens in the Italian peninsula, due to the riches acquired from conquered provinces. After considerable Roman expansion in the 1st century, Augustus Caesar introduced a wealth tax of about 1% and a flat
poll tax A poll tax, also known as head tax or capitation, is a tax levied as a fixed sum on every liable individual (typically every adult), without reference to income or resources. Head taxes were important sources of revenue for many governments fr ...
on each adult; this made the tax system less progressive, as it no longer only taxed wealth. In India, the Dahsala system was introduced in A.D. 1580 under the reign of Akbar. This system was introduced by the finance minister of Akbar, Raja Todar Mal, who was appointed in A.D. 1573 in Gujarat. The Dahsala system is a land-revenue system (system of taxation) which helped to make the collecting system be organised on basis of land fertility. Polaj land, Parati land, Cachar land, Banjar land.


Modern era

The first modern
income tax An income tax is a tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelate ...
was introduced in
Britain Britain usually refers to: * United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United ...

Britain
by
Prime Minister A prime minister or a premier is the head of the cabinet Cabinet or The Cabinet may refer to: Furniture * Cabinetry, a box-shaped piece of furniture with doors and/or drawers * Display cabinet, a piece of furniture with one or more transpa ...
William Pitt the Younger William Pitt the Younger (28 May 175923 January 1806) was a prominent Tory A Tory () is a person who holds a political philosophy Political philosophy or political theory is the philosophical Philosophy (from , ) is the st ...

William Pitt the Younger
in his budget of December 1798, to pay for weapons and equipment for the
French Revolutionary War The French Revolutionary Wars (french: Guerres de la Révolution française) were a series of sweeping military conflicts lasting from 1792 until 1802 and resulting from the French Revolution. They pitted French First Republic, France against Gr ...
. Pitt's new graduated (progressive) income tax began at a levy of 2
old pence The pre-decimal penny (1d) was a coin A coin is a small, flat, (usually, depending on the country or value) round piece of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material tha ...
in the
pound Pound or Pounds may refer to: Units * Pound (currency) A pound is any of various units of currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Im ...
(1/120) on incomes over £60 and increased up to a maximum of 2
shilling The shilling is a historical coin, and the name of a unit of modern currencies A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-D ...
s (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million. Pitt's progressive income tax was levied from 1799 to 1802 when it was abolished by
Henry Addington Henry Addington, 1st Viscount Sidmouth, (30 May 175715 February 1844) was a British Tory The Tories were a political faction Politics (from , ) is the set of activities that are associated with making decisions in groups, or othe ...

Henry Addington
during the
Peace of Amiens The Treaty of Amiens (French language, French: ''la paix d'Amiens'') temporarily ended hostilities between French First Republic, France and the United Kingdom of Great Britain and Ireland, United Kingdom at the end of the War of the Second Coa ...
. Addington had taken over as
prime minister A prime minister or a premier is the head of the cabinet Cabinet or The Cabinet may refer to: Furniture * Cabinetry, a box-shaped piece of furniture with doors and/or drawers * Display cabinet, a piece of furniture with one or more transpa ...
in 1801, after Pitt's resignation over
Catholic Emancipation #REDIRECT Catholic emancipation Catholic emancipation or Catholic relief was a process in the kingdoms of Great Britain Great Britain is an island in the North Atlantic Ocean off the northwest coast of continental Europe. With an area of ...
. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the
Battle of Waterloo The Battle of Waterloo was fought on Sunday, 18 June 1815, near Waterloo Waterloo most commonly refers to: * Battle of Waterloo, a battle on 18 June 1815 in which Napoleon met his final defeat :* Waterloo, Belgium, a municipality in Belgium fr ...

Battle of Waterloo
. The United Kingdom income tax was reintroduced by Sir
Robert Peel Sir Robert Peel, 2nd Baronet, (5 February 1788 – 2 July 1850) was a British Conservative Party (UK), Conservative statesman who served twice as Prime Minister of the United Kingdom (1834–1835 and 1841–1846) simultaneously serving as Cha ...

Robert Peel
in the
Income Tax Act 1842 The Income Tax Act 1842The citation of this Act by this short title was authorised by the Short Titles Act 1896 The Short Titles Act 1896 (59 & 60 Vict c 14) is an Acts of Parliament in the United Kingdom, Act of the Parliament of the United Kingdo ...
. Peel, as a
Conservative Conservatism is an aesthetic Aesthetics, or esthetics (), is a branch of philosophy that deals with the nature of beauty and taste (sociology), taste, as well as the philosophy of art (its own area of philosophy that comes out of aest ...

Conservative
, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150. Although this measure was initially intended to be temporary, it soon became a fixture of the British taxation system. A committee was formed in 1851 under
Joseph Hume Joseph Hume Fellow of the Royal Society, FRS (22 January 1777 – 20 February 1855) was a Scottish surgeon and Radicals (UK), Radical Member of Parliament (United Kingdom), MP.Ronald K. Huch, Paul R. Ziegler 1985 Joseph Hume, the People's M.P.: D ...

Joseph Hume
to investigate the matter but failed to reach a clear recommendation. Despite the vociferous objection,
William Gladstone William Ewart Gladstone (; 29 December 1809 – 19 May 1898) was a British statesman and Liberal Liberal or liberalism may refer to: Politics *a supporter of liberalism, a political and moral philosophy **Liberalism by country *an a ...
,
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to the chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and the chief executive officer of HM Treasury, Her Majesty's Treasury. As one of the four Grea ...
from 1852, kept the progressive income tax, and extended it to cover the costs of the
Crimean War The Crimean War, , was a military conflict fought from October 1853 to February 1856 in which Russian Empire, Russia lost to an alliance of Second French Empire, France, the Ottoman Empire, the United Kingdom of Great Britain and Ireland, ...
. By the 1860s, the progressive tax had become a grudgingly accepted element of the English fiscal system. In the United States, the first progressive income tax was established by the
Revenue Act of 1862 The Revenue Act of 1862 (July 1, 1862, Ch. 119, ), was a bill the United States Congress passed to help fund the American Civil War. President Abraham Lincoln signed the act into law on July 1, 1862. The act established the office of the Commission ...
. The act was signed into law by President
Abraham Lincoln Abraham Lincoln (; February 12, 1809 – April 15, 1865) was an American statesman and lawyer who served as the 16th president of the United States The president of the United States (POTUS) is the head of state and head of governme ...

Abraham Lincoln
, and replaced the
Revenue Act of 1861The Revenue Act of 1861, formally cited as Act of August 5, 1861, Chap. XLV, 12 Stat. 292', included the first U.S. Federal income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned ...
, which had imposed a flat income tax of 3% on incomes above $800. The
Sixteenth Amendment to the United States Constitution The Sixteenth Amendment (Amendment XVI) to the United States Constitution allows United States Congress, Congress to levy an income tax without apportioning it among U.S. state, the states on the basis of population. It was passed by Congress ...
, adopted in 1913, permitted Congress to levy all income taxes without any apportionment requirement. By the mid-20th century, most countries had implemented some form of progressive income tax.


Measuring progressivity

Indices such as the
Suits indexThe Suits index of a public policy is a measure of tax progressiveness, named for economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories ...
,
Gini coefficient In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science ...

Gini coefficient
, Kakwani index,
Theil index The Theil index is a statistic primarily used to measure economic inequality and other economic phenomena, though it has also been used to measure racial segregation. The first presentation of this method of measuring inequality was builded up on ...
,
Atkinson index The Atkinson index (also known as the Atkinson measure or Atkinson inequality measure) is a measure of income inequality developed by British economist Anthony Barnes Atkinson. The measure is useful in determining which end of the distribution contr ...
, and
Hoover index The Hoover index, also known as the Robin Hood index or the Schutz index, is a measure of income In microeconomics Microeconomics is a branch of mainstream economics Mainstream economics is the body of knowledge, theories, and models of e ...
have been created to measure the progressivity of taxation, using measures derived from
income distributionIn economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and ...
and
wealth distribution The distribution of wealth is a comparison of the wealth of various members or groups in a society A society is a Social group, group of individuals involved in persistent Social relation, social interaction, or a large social group shar ...
.Philip B. Coulter: ''Measuring Inequality'', 1989, (This book describes about 50 different inequality measures.)


Marginal and effective tax rates

The rate of tax can be expressed in two different ways; the ''marginal rate'' expressed as the rate on each additional unit of income or expenditure (or last dollar spent) and the ''effective (average) rate'' expressed as the total tax paid divided by total income or expenditure. In most progressive tax systems, both rates will rise as the amount subject to taxation rises, though there may be ranges where the marginal rate will be constant. Usually, the average tax rate of a taxpayer will be lower than the marginal tax rate. In a system with
refundable tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state (polity), state. It may also be a credit granted in recognition of taxes already paid or a form ...
s, or income-tested
welfare benefit Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet Basic needs, basic human needs such as food and shelter. Social security may either be synonymous with welfare, or ref ...
s, it is possible for marginal rates to fall as income rises, at lower levels of income.


Inflation and tax brackets

Tax laws might not be accurately indexed to
inflation In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a r ...

inflation
. For example, some tax laws may ignore inflation completely. In a progressive tax system, failure to index the brackets to inflation will eventually result in effective tax increases (if inflation is sustained), as inflation in wages will increase individual income and move individuals into higher tax brackets with higher percentage rates. This phenomenon is known as ''bracket creep'' and can cause
fiscal drag Fiscal drag happens when the government's net fiscal position (spending minus taxation) fails to cover the net savings desires of the private economy, also called the private economy's spending gap (earnings minus spending and private investment). ...
.


Economic effects

There is debate between politicians and economists over the role of tax policy in mitigating or exacerbating wealth inequality and the effects on economic growth .


Income equality

Progressive taxation has a direct effect on decreasing
income inequality There are wide varieties of economic inequality, most notably measured using the distribution of incomeIn economics Economics () is the social science that studies how people interact with value; in particular, the Production (econom ...
. This is especially true if taxation is used to fund progressive government spending such as transfer payments and
social safety net The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
s. However, the effect may be muted if the higher rates cause increased
tax evasion Tax evasion is an illegal attempt to defeat the imposition of taxes A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a g ...
. When income inequality is low,
aggregate demand In macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branc ...
will be relatively high, because more people who want ordinary
consumer good A final good or consumer good is a final product In production Production may be: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act o ...
s and services will be able to afford them, while the
labor force The workforce or labour force is the labour Labour or labor may refer to: * Childbirth Childbirth, also known as labour or delivery, is the ending of pregnancy where one or more babies leaves the uterus by passing through the vagina or ...

labor force
will not be as relatively monopolized by the wealthy.''The Economics of Welfare]''
Arthur Cecil Pigou Arthur Cecil Pigou (; 18 November 1877 – 7 March 1959) was an English economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and c ...
Andrew Berg and Jonathan D. Ostry, 2011,
Inequality and Unsustainable Growth: Two Sides of the Same Coin
" IMF Staff Discussion Note SDN/11/08,
International Monetary Fund The International Monetary Fund (IMF) is an international financial institution, headquartered in Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument The ...

International Monetary Fund
High levels of income inequality can have negative effects on long-term economic growth, employment, and
class conflict Class conflict, also referred to as class struggle and class warfare, is the political tension and economic antagonism that exists in society consequent to socioeconomics, socio-economic competition among the social classes or between Affluenc ...
. Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality. The difference between the
Gini index In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those so ...
for an income distribution before taxation and the Gini index after taxation is an indicator for the effects of such taxation. The economists
Thomas Piketty Thomas Piketty (; born 7 May 1971) is a French economist An economist is a professional and practitioner in the social science Social science is the Branches of science, branch of science devoted to the study of society, societies an ...

Thomas Piketty
and
Emmanuel Saez Emmanuel Saez (born November 26, 1972) is a French, naturalized American economist An economist is a practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and co ...
wrote that decreased progressiveness in US tax policy in the post World War II era has increased income inequality by enabling the wealthy greater access to capital. According to economist Robert H. Frank, tax cuts for the wealthy are largely spent on
positional goods Positional goods are goods valued only by how they are distributed among the population, not by how many of them there are available in total (as would be the case with other consumer goods). The source of greater worth of positional goods is their ...
such as larger houses and more expensive cars. Frank argues that these funds could instead pay for things like improving public education and conducting medical research, and suggests progressive taxation as an instrument for attacking positional externalities.


Economic growth

A report published by the OECD in 2008 presented empirical research showing a weak negative relationship between the progressivity of personal income taxes and economic growth. Describing the research, William McBride, a staff writer with the conservative
Tax Foundation The Tax Foundation is a Washington, D.C.-based think tank A think tank, or policy institute, is a research institute A research institute, research centre, or research center is an establishment founded for doing research. Research instit ...
, stated that progressivity of income taxes can undermine investment, risk-taking, entrepreneurship, and productivity because high-income earners tend to do much of the saving, investing, risk-taking, and high-productivity labor. According to
IMF The International Monetary Fund (IMF) is an international financial institution, headquartered in Washington, D.C. ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monu ...
, some advanced economies could increase progressivity in taxation for tackling inequality, without hampering growth, as long as progressivity is not excessive. Fund also states that the average top income tax rate for OECD member countries fell from 62 percent in 1981 to 35 percent in 2015, and that in addition, tax systems are less progressive than indicated by the statutory rates, because wealthy individuals have more access to tax relief.


Educational attainment

Economist
Gary Becker Gary Stanley Becker (; December 2, 1930 – May 3, 2014) was an American economist who received the 1992 Nobel Memorial Prize in Economic Sciences The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Econo ...
has described
educational attainmentEducational attainment is a term commonly used by statisticians to refer to the highest degree of education an individual has completed as defined by the Duterte Glossary. See also *Academic achievement Academic achievement or academic performance ...

educational attainment
as the root of
economic mobility Image:Going up or down advertisement.jpg, upright=1.7, Illustration from a 1916 advertisement for a vocational school in the back of a US magazine. Education has been seen as a key to economic mobility, and this advertisement appealed to Americans ...
. Progressive tax rates, while raising taxes on high income, have the goal and corresponding effect of reducing the burden on low income, improving income equality. Educational attainment is often conditional on cost and
family income Family income is generally considered a primary measure of a nation's financial prosperity. In the United States, political parties perennially disagree over which economic policies are more likely to increase family income. The party in power ofte ...
, which for the poor, reduces their opportunity for educational attainment. Increases in income for the poor and economic equality reduces the inequality of educational attainment. Tax policy can also include progressive features that provide
tax incentive A tax incentive is an aspect of a country's tax code Tax law or revenue law is an area of legal study in which public or sanctioned authorities, such as federal, state and municipal governments (as in the case of the US) use a body of rules a ...
s for education, such as
tax credit A tax credit is a tax incentive which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe the state (polity), state. It may also be a credit granted in recognition of taxes already paid or a for ...
s and
tax exemption Tax exemption is the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions. Tax-exempt status may provide complete relief from taxes, reduc ...
s for
scholarship A scholarship is an award of financial aid Student financial aid in the United States is funding that is available exclusively to students attending a Higher education in the United States, post-secondary educational institution in the Unite ...

scholarship
s and
grants Grant or Grants may refer to: Places *Grant County (disambiguation)Grant County may refer to: Places ;Australia * County of Grant, Victoria ;United States *Grant County, Arkansas *Grant County, Indiana *Grant County, Kansas *Grant County, K ...
. A potentially adverse effect of progressive tax schedules is that they may reduce the incentives for educational attainment.Heckman, J., L. Lochner and C. Tabner
Tax Policy and Human Capital Formation
American Economic Review, 88, 293–297. Accessed: 31 July 2012.
By reducing the after-tax income of highly educated workers, progressive taxes can reduce the incentives for citizens to attain education, thereby lowering the overall level of
human capital Human capital is a concept used by human resource professionals to designate personal attributes considered useful in the production process. It encompasses employee knowledge Knowledge is a familiarity or awareness, of someone or someth ...

human capital
in an economy. However, this effect can be mitigated by an education
subsidy A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...

subsidy
funded by the progressive tax. Theoretically, public support for government spending on higher education increases when taxation is progressive, especially when income distribution is unequal.


Psychological factors

A 2011 study psychologists Shigehiro Oishi, Ulrich Schimmack, and
Ed Diener Edward Francis Diener (July 25, 1946 – April 27, 2021) was an American psychologist, professor, and author. Diener was a professor of psychology at the University of Utah and the University of Virginia, and Joseph R. Smiley Distinguished Profe ...
, using data from 54 countries, found that progressive taxation was positively associated with the subjective well-being, while overall tax rates and government spending were not. The authors added, "We found that the association between more-progressive taxation and higher levels of subjective well-being was mediated by citizens’ satisfaction with
public goods In economics Economics () is a social science Social science is the branch A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of pla ...
, such as education and public transportation." Tax law professor Thomas D. Griffith, summarizing research on human happiness, has argued that because inequality in a society significantly reduces happiness, a progressive tax structure which redistributes income would increase welfare and happiness in a society. Since progressive taxation reduces the income of high earners and is often used as a method to fund government social programs for low income earners, calls for increasing tax progressivity have sometimes been labeled as
envy Envy (from Latin ''invidia'') is an emotion which occurs when a person lacks another's superior quality, achievement, or possession and either desires it or wishes that the other lacked it. Aristotle defined envy as pain at the sight of anothe ...

envy
or
class warfare ''Class Warfare'' is a book of collected interviews with Noam Chomsky Avram Noam Chomsky (born December 7, 1928) is an American linguist, philosopher, cognitive scientist, historian, social critic, and political activist. Sometimes called ...
, while others may describe such actions as fair or a form of
social justice Social justice is justice in terms of the distribution of wealth Wealth is the abundance of valuable financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as deposit (finance), ban ...
.


Computation

There are two common ways of computing a progressive tax, corresponding to point–slope form and slope–intercept form of the equation for the applicable bracket. These compute the tax either as the tax on the bottom amount of the bracket ''plus'' the tax on the marginal amount ''within'' the bracket; or the tax on the entire amount (''at'' the marginal rate), ''minus'' the amount that this overstates tax on the bottom end of the bracket. For example, suppose there are tax brackets of 10%, 20%, and 30%, where the 10% rate applies to income from $1 to $10,000; the 20% rate applies to income from $10,001 to $20,000; and the 30% rate applies to all income above $20,000. In that case the tax on $20,000 of income (computed by adding up tax in each bracket) is 10% × $10,000 + 20% × $10,000 = $1,000 + $2,000 = $3,000. The tax on $25,000 of income could then be computed two ways. Using point–slope form (tax on bottom amount plus tax on marginal amount) yields: :\$3,000 + (\$25,000 - \$20,000) \times 30\% = \$1,500 + \$3,000 = \$4,500. Geometrically, the line for tax on the top bracket passes through the point ($20,000, $3,000) and has a slope of 0.3 (30%). Alternatively, 30% tax on $20,000 yields 30% × $20,000 = $6,000, which overstates tax on the bottom end of the top bracket by $6,000 − $3,000 = $3,000, so using slope–intercept form yields: :\$25,000 \times 30\% - \$3,000 = \$7,500 - \$3,000 = \$4,500. Geometrically, the line for tax on the top bracket intercepts the ''y''-axis at −$3,000 – it passes through the point (0, −$3,000) – and has a slope of 0.3 (30%). In the United States, the first form was used through 2003, for example (for the 2003 15% Single bracket): * If the amount on Form 1040, line 40 axable Income is: ''Over—'' 7,000 * ''But not over—'' 28,400 * Enter on Form 1040, line 41 $700.00 + 15% * ''of the amount over—'' 7,000 From 2004, this changed to the second form, for example (for the 2004 28% Single bracket): * Taxable income. If line 42 is— At least $100,000 but not over $146,750 * (a) Enter the amount from line 42 * (b) Multiplication amount × 28% (.28) * (c) Multiply (a) by (b) * (d) Subtraction amount $5,373.00 * Tax. Subtract (d) from (c). Enter the result here and on Form 1040, line 43


Examples

Most systems around the world contain progressive aspects. When taxable income falls within a particular
tax bracket Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, though that is rarer). Essentially, tax brackets are the cutoff values for taxable income—income past a certain point ...
, the individual pays the listed percentage of tax ''on each dollar that falls within that monetary range''. For example, a person in the U.S. who earned $10,000 US of
taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. Th ...
(income after adjustments, deductions, and exemptions) would be liable for 10% of each dollar earned from the 1st dollar to the 7,550th dollar, and then for 15% of each dollar earned from the 7,551st dollar to the 10,000th dollar, for a total of $1,122.50. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
, there are seven income tax brackets ranging from 10% to 39.6% above an untaxed level of income based on the
personal exemption Under United States tax law, a personal exemption is an amount that a resident taxpayer is entitled to claim as a tax deduction against personal income in calculating taxable income and consequently Income tax in the United States, federal income t ...
and usually various other tax exemptions, such as the Earned Income Tax Credit and home mortgage payments. The federal tax rates for individual taxpayers in the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
for the tax year 2021 are as follows: 10% from $0 to $9,950; 12% from $9,950 to $40,525; 22% from $40,525 to $86,375; 24% from $86,375 to $164,925; 32% from $164,925 to $209,425; 35% from $209,425 to $523,600; and 37% from $523,600 and over. The US federal tax system also includes deductions for state and local taxes for lower income households which mitigates what are sometimes regressive taxes, particularly
property taxes A property tax or millage rate is an ad valorem tax An ''ad valorem'' tax (Latin Latin (, or , ) is a classical language A classical language is a language A language is a structured system of communication Communicatio ...
. Higher income households are subject to the alternative minimum tax that limits deductions and sets a flat tax rate of 26% to 28% with the higher rate commencing at $175,000 in income. There are also deduction phaseouts starting at $112,500 for single filers. The net effect is increased progressivity that completely limits deductions for state and local taxes and certain other credits for individuals earning more than $306,300. In order to counteract regressive state and local taxes, many US states implement progressive income taxes. 32 states and the District of Columbia have graduated-rate income taxes. The brackets differ across
states State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, Un ...
. There has been a hefty decline in progressivity of the United States federal tax system since the 1960s. The two periods with the largest tax progressivity reductions occurred under the Reagan administration in the 1980s and the Bush administration in the 2000s. The
Tax Cuts and Jobs Act of 2017 The Tax Cut and Jobs Act of 2017 (TCJA) is a congressional revenue act of the United States signed into law by President Donald Trump Donald John Trump (born June 14, 1946) is an American politician A politician is a person active in ...
implemented by
President Trump Donald John Trump (born June 14, 1946) is an American media personality Celebrity is a condition of fame and broad public recognition of an individual or group, or occasionally a character or animal, as a result of the attention give ...

President Trump
greatly affected the United States tax system, making it much less progressive than it once was. The act took steps to dramatically lower taxes for high-income households, open deduction loopholes for businesses, and cut the federal corporate tax rate down to 21 percent. It maintained the structure of seven tax brackets for personal income, but lowered five of the seven by one percent or more.
Belgium Belgium ( nl, België ; french: Belgique ; german: Belgien ), officially the Kingdom of Belgium, is a country in Western Europe Western Europe is the western region of Europe. The region's countries and territories vary depending on cont ...

Belgium
has the following personal income tax rates (for the income year 2021): 25% from 0 to €13,540; 40% from €13,540 to €23,900; 45% from €23,900 to €41,360; and 50% from €41,360 and any amount over.
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
has the following federal tax rates on income (for the year 2021): 15% from C$0 to $49,020; 20.5% from $49,020 to $98,040; 26% from $98,040 to $151,978; 29% from $151,978 to $216,511; and 33% on income over $216,511.
Denmark Denmark ( da, Danmark, ) is a Nordic country The Nordic countries, or the Nordics, are a geographical and cultural region In geography, regions are areas that are broadly divided by physical characteristics ( physical geography), hu ...

Denmark
has the following state tax rates regarding personal income: 12.11% for the bottom tax base; 15% for the top tax base, or income exceeding DKK 544,800. Additional taxes, such as the municipal tax (which has a country average of 24.971%), the labour market tax, and the church tax, are also applied to individual’s income.
Germany ) , image_map = , map_caption = , map_width = 250px , capital = Berlin Berlin (; ) is the Capital city, capital and List of cities in Germany by population, largest city of Germany by both area and population. Its 3,769,495 inh ...

Germany
has the following personal income tax rates for a single taxpayer (for the 2020 tax year): 0% up to
EUR The euro (currency symbol, symbol: euro sign, €; ISO 4217, code: EUR) is the official currency of 19 of the Member state of the European Union, member states of the European Union. This group of states is known as the eurozone or euro area ...

EUR
The euro sign () is the currency sign A currency symbol or currency sign is a graphic symbol used as a shorthand for a currency's name, especially in reference to amounts of money. Usage When writing currency amounts, the location of the sym ...

€
9,744; 14-42% from €9,744 to €57,918; 42% from €57,918 to €274,612; and 45% for €274,612 and any amount over.
Norway Norway, officially the Kingdom of Norway,Names in the official and recognised languages: Bokmål Bokmål (, ; literally "book tongue") is an official written standard for the Norwegian language Norwegian (Norwegian: ''norsk'') is a Nort ...

Norway
has the following personal income tax rates (for the year 2020): 1.9% from
NOK Nok is a village in Jaba Local Government Area of Kaduna State Kaduna State (Hausa language, Hausa: ''Jihar Kaduna''; Tyap language, Tyap: ''Si̱tet Ka̱duna'') is a States of Nigeria, state in northern Nigeria. The state capital is its name ...
180,800 to NOK254,500; 4.2% from NOK254,500 to NOK639,750; 13.2% from NOK639,750 to NOK999,550; and 16.2% from NOK999,550 and above.
Sweden Sweden ( sv, Sverige ), officially the Kingdom of Sweden ( sv, links=no, Konungariket Sverige ), is a Nordic country The Nordic countries, or the Nordics, are a geographical and cultural region In geography, regions are areas that ...

Sweden
has the following state income tax brackets for natural persons: 0% on income up to SEK 413,200; 20% from SEK 413,200 to SEK 591,600; and 25% from SEK 591,600 and any amount over. The
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
has the following income tax rates: 0% from GBP£0 to £12,570; 20% from £12,571 to £50,270; 40% from £50,271 to £150,000; and 45% from £150,00 and over. In Scotland, however, there are more tax brackets than in other UK countries.
Scotland Scotland ( sco, Scotland, gd, Alba Alba (Scottish Gaelic Scottish Gaelic ( gd, Gàidhlig or Scots Gaelic, sometimes referred to simply as Gaelic) is a Goidelic language (in the Celtic languages, Celtic branch of the Indo-European ...

Scotland
has the following additional income tax brackets: 19% from £12,571 to £14,667; 20% from £14,667 to £25,296; 21% from £25,297 to £43,662; 41% from £43,663 to £150,000; and 46% for any amount over £150,000.
New Zealand New Zealand ( mi, Aotearoa ''Aotearoa'' (; commonly pronounced by English English usually refers to: * English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon Engl ...

New Zealand
has the following income tax brackets (for the 2012–2013 financial year): 10.5% up to
NZ$ The New Zealand dollar (currency sign, sign: $; ISO 4217, code: NZD, also abbreviated NZ$) ( mi, tāra o Aotearoa) is the official currency and legal tender of New Zealand, the Cook Islands, Niue, the Ross Dependency, Tokelau, and a British terr ...
14,000; 17.5% from $14,001 to $48,000; 30% from $48,001 to $70,000; 33% over $70,001; and 45% when the employee does not complete a declaration form. All values are in New Zealand dollars and exclude the earner levy.
Australia Australia, officially the Commonwealth of Australia, is a Sovereign state, sovereign country comprising the mainland of the Australia (continent), Australian continent, the island of Tasmania, and numerous List of islands of Australia, sma ...

Australia
has the following progressive income tax rates (for the 2012–2013 financial year): 0% effective up to A$18,200; 19% from $18,201 to $37,000; 32.5% from $37,001 to $80,000; 37% from $80,001 to $180,000; and 45% for any amount over $180,000.


See also


References

68. ^"https://www.jagranjosh.com/general-knowledge/dahsala-system-1408960979-1"


External links


''The Progressive Income Tax: Theoretical Foundations''
* {{DEFAULTSORT:Progressive Tax Taxation and redistribution Tax incidence Tax terms Economic progressivism