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Similarities between a progressive tax and a regressive tax
Disadvantages of progressive tax system
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A flat tax is a system of taxation that taxes at a uniform rate, regardless of income level. In the United States we currently use a progressive tax system, which means that high-income earners pay taxes at a higher rate than low-income earners. A flat tax rate is a tax system can uses a constant percentage as a deduction, which is applied to individual income. There are various tax systems that are labeled a flat tax even though they are significantly different. A true flat rate tax is a system of taxation is where one tax rate is applied to all personal income with no personal deductions. A flat tax is a tax that is applied at a consistent rate with no variables in its application. In contrast with progressive or regressive taxes, where …show more content…
Otherwise, it would be theoretically possible for a person to earn more money but actually end up with less, due to the entire amount being taxed at the higher rate. Progressive tax systems allow for a number of adjustments to taxable income, such as exemptions, deductions, and tax credits. These can be used to provide additional relief to low-income citizens, or to encourage certain types of behavior, such as business investment, higher education or purchasing a home. In a progressive system of taxation, there is a greater portion of personal income that gets taxed at certain income levels. Someone making $25k per year, for example, may have a 10% tax rate on this income. Someone earning $50k per year would pay 10% taxes on the first $25k they earned, but then 15% on the remainder of the amount. In the United States, the top tax rate typically hovers around 35%. A progressive tax policy requires individuals with higher incomes and wealth to pay taxes at a rate that is higher than those with lower …show more content…
Shifts tax burden to those most able to pay.
2. Protects the taxpayer during hard times, when income is reduced, the tax rate also become shifts to a lower bracket.
3. Those who earn the least amount are required to contribute the least amount for services to be rendered, keeping the income gap closer than it would be otherwise.
4. If everyone paid the same percentage rate on their income, the poor would wind up paying a greater total amount of their income than the rich.
5. The progressive system of taxation takes more when people make more so that the entire nation benefits instead of just a select few.
6. When a person’s income falls, so does their taxation responsibilities. .
CONS
1. Inflation can push taxpayer into a higher tax bracket, with no real increase in income after adjusting for inflation
2. Individuals with high earning potential may leave the country to avoid high taxes
3. It can discourage business investment and expansion, as additional profit is taxed at higher rates
4. Imposes a discriminatory penalty on those who are able to make more from their creativity, skills, and talent.
5. It encourages the wealthy to not be transparent about their income. The wealthy are able to take alternative income methods that the working public cannot take to limit their taxation
In general, it can be said that the tax system in the United Kingdom attempts to reduce inequality and poverty, although it is seen by many as an unclear and unfair system. Tax scams and other avoidance measures are symptoms of a wider malaise in a regime that need to be more transparent and fairer (Telegraph View, 2014). However, for those in lower pay employment, its effectiveness can be seen through the income tax, which will deduce between 10% and 20% of their final income, compared to 40% to 50% of those in higher pay. In addition, measures such the national minimum wage and benefits in-kind guarantee that individuals in lower pay are provided with a minimum standard of payment as well as services that might not be easily accessible for them as much as there are accessible for wealthy people.
Briefly explain the statement "Fairness of taxation is increased when more kinds of wealth are included".
Should the American tax system remain the same, where individuals’ income is taxed based on how much one makes with loopholes and deductions? Should we consider a system that would eliminate progressive income taxes, taxing everyone at an equal rate through the Flat Rate Tax, or should taxes be collected through national consumption of retail goods and the Fair Tax System? Our current system of taxation is a varied percentage rate based on different income brackets. Many say that it violates our constitutional rights through unequal taxation. Multiple deductions, loopholes, special rates, and a complex system of regulations all characterize our Federal Income Tax System, prompting many to question why it is still being used (Peters, 2013).
The tax policy in the United States is very confusing. When the tax policy was originally written in 1913 it was four hundred pages. Now, over the past ninety one years, that tax policy has evolved to over 72,000 pages. Since the tax code has become so lengthy and nearly impossible to understand, the topic of tax reform has been in the minds of many. Although, most barely think about tax reform until tax season. It is a controversial subject due to the impact a change in tax code would have on the American people. The two most popular and widely known stakeholders in this debate are the two major political parties in the United States, the Democrats and the Republicans. The two parties share absolutely no common ground on the subject of tax reform, other than thinking the other parties solution is wrong. The Democrats, in general, want to raise taxes on the wealthy, while Republicans, generally, want to cut taxes for everyone (Democratic Party) (GOP). Unfortunately, with the United States economy currently doing so poorly, the parties can no longer afford to remain at a standstill, some sort of compromise is going to have to be made. The implementation of a flat tax, and discarding the current tax system would be a compromise that both parties can agree on and will simplify the tax code, overall benefiting all Americans.
(TRANSITION: But before we get into all of that, the questions I asked you for my audience analysis revealed that not all of you are as riveted by tax policy as I am-shocking I know-, so I will clarify some of the jargon I will be using. First the progressive tax is a tax system where the tax rates increase with income earned. Let’s say the first tax bracket is set at 50,000 dollars, and the first tax rate is set at ten percent, and the rate above it is set at twenty percent. So, if you make 70,000 dollars, the first 50,000 will be taxed
Aaron Hill from Education Portal suggests “ A progressive tax system really acts as a tool for redistributing income from the upper class to the lower and middle class. Those individuals who earn more pay more into the federal government. This helps keeps the income gap from growing wider between the rich and the poor.” Although this is what the government claims most of the money is just recirculated for the federal government to use as it’s own
Does a progressive tax system by itself guarantee that resources will be redistributed from the rich to the poor?
Whether or not the United States government should adopt a flat tax system in place of its current progressive tax system has been a hotly debated topic for decades. A flat tax is a tax system which refers to a tax on household income that is the same amount for each household- regardless of income level. The United States currently implements a progressive tax system, meaning that high-income earners pay taxes at a higher rate than low-income earners. The two systems differ greatly in their objectives and methods of execution and typically cause a good deal of unrest amongst lawmakers and citizens alike.
The flat tax will make taxes fair for all people. No matter what race a person is, what social class a person is in, or who they’re friends with, they will end up paying the same rate. Every single taxpayer will have to sacrifice just as much of his or her life as the next person down the road. One of the three main reasons for taxes is to maintain fairness. This is most reasonable ways to maintain fairness. The wealthy will still be paying more money than the poor person, but they both have the same tax burden.
To many people a flat tax would be far more appealing than the current tax system just because it is so much easier to complete. Amadeo wrote here about how simple a flat tax is compared what America currently has.
In this case, let us estimate that monetary amount to be $13,000- this is the number that Mr. Stern came up with in his book. We must consider the fact that the “Average Joe” earns $44,150 annually. If a 39% flat tax would be implemented, “Joe” would end up paying $17,218 in income tax, while only receiving a mere $13,000 from the government. On top of that, he would lose some valuable benefits (Medicare, Medicaid, Social Security). The only people who would benefit from UBI would be individuals earning less than $33,334. These people are in the lowest and second lowest tax
By taxing it will create more revenue for the government to counter its spending. But who better to tax than people who have the most money? In a recent article, published by the National Center for Policy Analysis, it talks about how the president is planning to raise taxes, particularly in the area of capital gains. The author then goes on to say that people were begin to save their assets as opposed to selling them leading to less government revenue (Raising Taxes on the Wealthy Would Hurt the Economy.” Although the author’s opinion is valid, there is research to prove that raising taxes on high-income Americans will not harm the economy. First raising taxes will not hurt investment. The Congressional Research Service reported that if they were to reduce the tax, it would have a small and even negative impact on investment. In another publishing by the CRS, it stated “Capital Gains tax rate increases appear to increase public saving and may have little or no effect on private saving. Consequently, capital gains tax increases likely have a positive overall impact on national saving and investment.” Chye-Ching Huang, the author of “Households Would Not Harm The Economy: Policy Should Be Included In Balanced Deficit-Reduction Effort,” states people who are against raising taxes on the wealthy will claim that higher taxes on the healthy will lead to the high-income taxpayers reporting less income to the IRS. He then continues to propose that policy makers can enforce tax avoidance laws to counter act the wealthy tax payers avoiding their taxes. The final reason why raising taxes on High-Income American will be beneficial to beating the deficit is that it will encourage the upper class to work more. With the rich getting taxed more, it hurts their morale to continue working hard and making money if they are just going to get taxed more. Although some may think like this,
... rich, this would somehow be the great equalizer and bridge the ever increasing income gap between the wealthy and the less fortunate. However, this concept could not be further from the truth. In essence, this would not solve anything. The unequal distribution of wealth is an erroneous and irrefutable perception America will always be left to face. Whether intentional or not, the unequal distribution within American society is seen as a flaw in our nation’s history.
Tax rate refers to the percentage of the tax base, which is settled in tax. It is the tax charged by the government on a taxpayer’s income.
There are two things in life that are certain: death and taxes. In today's world, the majority of our government's income comes from taxation. A tax is not a voluntary payment or donation, but an enforced contribution imposed by government (Mikesell, 2011). Taxes are an amount of money collected from citizens, and they are used to provide public goods and services to benefit our communities. Taxes are amounts established in a political process of structured laws to determine how the collective cost of government services will be distributed among elements of the market economy. The two most important tax policies are the level of taxation, or how much taxes should be, and the structure of the system, or how revenue is to be raised (Mikesell, 2011). To better understand taxation and its purposes, this paper will discuss in detail the different tax structures- income taxes, sales taxes and property taxes and describe their advantages and disadvantages based on equity, economic effects, collectability, and transparency.