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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 person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
in which the
tax rate In a tax system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, and effective. These rates can also be p ...
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 system, the tax rate is the ratio (usually expressed as a percentage) at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, and effective. These rates can also be p ...
.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 the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behav ...
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 imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high t ...
, 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 imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
es, in which people with lower
income Income is the Consumption (economics), consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be diff ...
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, redu ...
s,
tax credits 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 ...
, or selective taxation that creates progressive distribution effects. For example, a
wealth Wealth is the abundance of Value (economics), valuable financial assets or property, physical possessions which can be converted into a form that can be used for financial transaction, transactions. This includes the core meaning as held in the ...
or
property tax A property tax or millage rate is an ad valorem tax on the value of a property.In the OECD classification scheme, tax on property includes "taxes on immovable property or Wealth tax, net wealth, taxes on the change of ownership of property thr ...
, a sales tax on
luxury good In economics, a luxury good (or upmarket good) is a good (economics), good for which demand (economics), demand increases more than what is proportional as income rises, so that expenditures on the good become a greater proportion of overall spend ...
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 income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
, 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 Happiness, in the context of Mental health, mental or emotional states, is positive or Pleasure, pleasant emotions ranging from contentment to intense joy. Other forms include life satisfaction, well-being, subjective well-being, flourishin ...
, the subjective well-being of nations and citizen satisfaction with
public goods In economics, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485-535). Elsevier. is a Good (economics), good that is both excludabl ...
, such as education and transportation.


Early examples

In the early days of the
Roman Republic The Roman Republic ( la, Res publica Romana ) was a form of government of Rome and the era of the ancient Rome, classical Roman civilization when it was run through res publica, public Representation (politics), representation of the Roman peo ...
, 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 imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
was introduced in
Britain Britain most often refers to: * The United Kingdom, a sovereign state in Europe comprising the island of Great Britain, the north-eastern part of the island of Ireland and many smaller islands * Great Britain, the largest island in the United King ...
by
Prime Minister A prime minister, premier or chief of cabinet is the head of the Cabinet (government), cabinet and the leader of the Minister (government), ministers in the Executive (government), executive branch of government, often in a parliamentary syst ...
William Pitt the Younger William Pitt the Younger (28 May 175923 January 1806) was a British statesman, the youngest and last prime minister of Great Britain (before the Acts of Union 1800) and then first Prime Minister of the United Kingdom, prime minister of the Un ...
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 The French Revolution ( ) was a period of ...
. Pitt's new graduated (progressive) income tax began at a levy of 2
old pence The United Kingdom, British £sd, pre-decimal penny was a denomination of Coins of the United Kingdom, sterling coinage worth of one Pound (currency), pound or of one Shilling (British coin), shilling. Its symbol was ''d'', from the Roman denari ...
in the pound (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 currency, currencies formerly used in the United Kingdom, Australia, New Zealand, other British Commonwealth countries and Ireland, where they were generally equivalent to 1 ...
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 an England, English Tory statesman who served as Prime Minister of the United Kingdom from 1801 to 1804. Addington is best known for obtaining the Treaty of Amiens in ...
during the
Peace of Amiens The Treaty of Amiens (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 Coalition. It marked ...
. Addington had taken over as
prime minister A prime minister, premier or chief of cabinet is the head of the Cabinet (government), cabinet and the leader of the Minister (government), ministers in the Executive (government), executive branch of government, often in a parliamentary syst ...
in 1801, after Pitt's resignation over
Catholic Emancipation Catholic emancipation or Catholic relief was a process in the kingdoms of Kingdom of Great Britain, Great Britain and Kingdom of Ireland, Ireland, and later the combined United Kingdom of Great Britain and Ireland, United Kingdom in the late 18t ...
. 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, Belgium, Waterloo (at that time in the United Kingdom of the Netherlands, now in Belgium). A French army under the command of Napoleon was defeated by two of the armie ...
. 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 ...
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 Ki ...
. Peel, as a
Conservative Conservatism is a Philosophy of culture, cultural, Social philosophy, social, and political philosophy that seeks to promote and to preserve traditional institutions, practices, and values. The central tenets of conservatism may vary in r ...
, 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. ...
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 Party (UK), Liberal politician. In a career lasting over 60 years, he served for 12 years as Prime Minister of the United Kingdom, spread ...
,
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and head of HM Treasury, His Majesty's Treasury. As one of the four Great Offices of State, the Ch ...
from 1852, kept the progressive income tax, and extended it to cover the costs of the
Crimean War The Crimean War, , was fought from October 1853 to February 1856 between Russian Empire, Russia and an ultimately victorious alliance of the Ottoman Empire, Second French Empire, France, the United Kingdom of Great Britain and Ireland, Uni ...
. 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 Commissio ...
. The act was signed into law by President
Abraham Lincoln Abraham Lincoln ( ; February 12, 1809 – April 15, 1865) was an American lawyer, politician, and statesman who served as the 16th president of the United States from 1861 until his assassination in 1865. Lincoln led the nation throu ...
, and replaced the
Revenue Act of 1861 The 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 statute (seSec.49. The Act, motivated by the need to fund the American Civil War, Civil War, imposed an income ...
, 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 The Constitution of the United States is the supreme law of the United States of America. It superseded the Articles of Confederation, the nation's first co ...
, 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 index, 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 Theil index ''T''T is the same as Redundancy (information theory), redundanc ...
, Atkinson index, and
Hoover index The Hoover index, also known as the Robin Hood index or the Schutz index, is a measure of income inequality. It is equal to the percentage of the total population's income that would have to be redistribution of income and wealth, redistributed to ...
have been created to measure the progressivity of taxation, using measures derived from
income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes eco ...
and
wealth distribution The distribution of wealth is a comparison of the wealth of various members or groups in a society. It shows one aspect of economic inequality or heterogeneity in economics, economic heterogeneity. The distribution of wealth differs from the i ...
.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 A tax incentive is an aspect of a government's taxation policy designed to incentive, incentivize or encourage a particular economic activity by reducing tax payments. Tax incentives can have both positive and n ...
s, or income-tested welfare benefits, 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 is an increase in the general price level 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 reductio ...
. 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.


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 income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of we ...
. 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 by individuals, corporations, trust (property), trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities ...
. When income inequality is low,
aggregate demand In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is ...
will be relatively high, because more people who want ordinary
consumer good A final good or consumer good is a final product In Production (economics), production, a final product, or finished product is a product (business), product that is ready for sale.Wouters, Mark; Selto, Frank H.; Hilton, Ronald W.; Maher, Mich ...
s and services will be able to afford them, while the
labor force The workforce or labour force is a concept referring to the Pooling (resource management), pool of human beings either in employment or in unemployment. It is generally used to describe those working for a single types of companies, company or ...
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. As a teacher and builder of the School of Economics at the University of Cambridge, he trained and influenced many Cambridge economists who went on to take chair ...
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 a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...
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 because of socioeconomics, socio-economic competition among the social classes or between Affluence, ...
. Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality. The difference between the Gini index for an
income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes eco ...
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 who is Professor of Economics at the School for Advanced Studies in the Social Sciences, Associate Chair at the Paris School of Economics and Centennial Professor of Economics in the Int ...
and Emmanuel Saez 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 thei ...
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 an American think tank A think tank, or policy institute, is a research institute that performs research and advocacy concerning topics such as social policy, political strategy, economics, military, technology, an ...
, 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 a major financial agency of the United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and international security, ...
, 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. He was a professor of economics and sociology at the University of Chicago, and was a leader of ...
has described
educational attainment Educational attainment is a term commonly used by statisticians A statistician is a person who works with theoretical A theory is a reason, rational type of abstraction, abstract thinking about a phenomenon, or the results of such thinking. Th ...
as the root of
economic mobility Economic mobility is the ability of an individual, family or some other group to improve (or lower) their economic status—usually measured in income. Economic mobility is often measured by movement between income quintiles. Economic mobility ...
. 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, 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 government's taxation policy designed to incentive, incentivize or encourage a particular economic activity by reducing tax payments. Tax incentives can have both positive and negative impacts on an economy. Amon ...
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, redu ...
s for
scholarship A scholarship is a form of Student financial aid, financial aid awarded to students for further education. Generally, scholarships are awarded based on a set of criteria such as academic merit, Multiculturalism, diversity and inclusion, athleti ...
s and grants. 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 social scientists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skill, skills, know-how, good health, and education. Human capital has a subst ...
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 ...
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, 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, a public good (also referred to as a social good or collective good)Oakland, W. H. (1987). Theory of public goods. In Handbook of public economics (Vol. 2, pp. 485-535). Elsevier. is a Good (economics), good that is both excludabl ...
, 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 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 refe ...
for low income earners, calls for increasing tax progressivity have sometimes been labeled as
envy Envy is an emotion which occurs when a person lacks another's quality, skill, achievement, or possession and either desires it or wishes that the other lacked it. Aristotle defined envy as pain at the sight of another's good fortune, stirred b ...
or class warfare, 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, Equal opportunity, opportunities, and Social privilege, privileges within a society. In Western Civilization, Western and Culture of Asia, Asian cultures, the concept of social ...
.


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 ; the 20% rate applies to income from ; and the 30% rate applies to all income above . In that case the tax on of income (computed by adding up tax in each bracket) is 10\% \times \$10,000 + 20\% \times \$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\% \times \$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 ax$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 but not over * (a) Enter the amount from line 42 * (b) Multiplication amount × 28% (.28) * (c) Multiply (a) by (b) * (d) Subtraction amount * 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, 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 US of
taxable income Taxable income refers to the base upon which an income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed ...
(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 .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., ...
, 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 ...
and usually various other tax exemptions, such as the
Earned Income Tax Credit The United States federal earned income tax credit or earned income credit (EITC or EIC) is a refundable tax credit for low- to moderate-income working individuals and couples, particularly those with children. The amount of EITC benefit depends ...
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., ...
for the tax year 2021 are as follows: 10% from $0 to ; 12% from to ; 22% from to ; 24% from to ; 32% from to ; 35% from to ; and 37% from 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 on the value of a property.In the OECD classification scheme, tax on property includes "taxes on immovable property or Wealth tax, net wealth, taxes on the change of ownership of property thr ...
. Higher income households are subject to the
alternative minimum tax The alternative minimum tax (AMT) is a tax imposed by the United States federal government The federal government of the United States (U.S. federal government or U.S. government) is the Federation#Federal governments, national governme ...
that limits deductions and sets a flat tax rate of 26% to 28% with the higher rate commencing at in income. There are also deduction phaseouts starting at 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 . 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. 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 Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, , is a congressional revenue act of the United States originally introduced in Congress as the Tax Cuts and Jobs A ...
implemented by
President Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021. Trump graduated from the Wharton School of the University of Pe ...
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, ; french: Belgique ; german: Belgien officially the Kingdom of Belgium, is a country in Northwestern Europe. The country is bordered by the Netherlands to the north, Germany to the east, Luxembourg to the southeast, France to the ...
has the following personal income tax rates (for the income year 2021): 25% from EUR€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 North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world ...
has the following federal tax rates on income (for the year 2021): 15% from C$0 to ; 20.5% from to ; 26% from to ; 29% from to ; and 33% on income over .
Denmark ) , song = ( en, "King Christian stood by the lofty mast") , song_type = National and royal anthem , image_map = EU-Denmark.svg , map_caption = , subdivision_type = Sovereign state , subdivision_name = Danish Realm, Kingdom of 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 Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated between ...
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 out of the Member state of the European Union, member states of the European Union (EU). This group of states is known as the eurozone o ...
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, is a Nordic countries, Nordic country in Northern Europe, the mainland territory of which comprises the western and northernmost portion of the Scandinavian Peninsula. The remote Arctic island of ...
has the following personal income tax rates (for the year 2020): 1.9% from NOK180,800 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, formally the Kingdom of Sweden,The United Nations Group of Experts on Geographical Names states that the country's formal name is the Kingdom of SwedenUNGEGN World Geographical Names, Sweden./ref> is a Nordic countries, Nordic c ...
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, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
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 £150,000 and over. In Scotland, however, there are more tax brackets than in other UK countries.
Scotland Scotland (, ) is a Countries of the United Kingdom, country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a Anglo-Scottish border, border with England to the southeast ...
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. As of April 1st 2021
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 List of islands of New Zealand, smaller islands. It is the ...
has the following income tax brackets: 10.5% up to ; 17.5% from to ; 30% from to ; 33% from to ; 39% for any amount over ; 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 country comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands. With an area of , Australia is the largest country by ...
has the following progressive income tax rates (for the 2012–2013 financial year): 0% effective up to ; 19% from to ; 32.5% from to ; 37% from to ; and 45% for any amount over .


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