progressive tax

Examples of progressive tax in the following topics:

• Comparing Marginal and Average Tax Rates

  • Taxes can be evaluated based on an average impact or a marginal impact and can be categorized as progressive, regressive, or proportional.
  • A progressive tax is a tax in which the tax rate increases as the taxable base amount increases .
  • The term "progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.
  • The opposite of a progressive tax is a regressive tax, where the relative tax rate or burden increases as an individual's ability to pay it decreases.
  • Graph demonstrates a progressive tax distribution on income that becomes regressive for top earners.

• Trading off Equity and Efficiency

  • Income taxes are a laddered progressive tax where income tax rates are set in income bands or ranges.
  • Vertical equity follows from the laddering of income tax to progressively higher rates.
  • The purpose of a progressive tax system is to increase the tax burden to those most able to pay.
  • Income tax is a progressive tax that assumes a regressive nature at the highest tax rate.
  • Explain tax equity in relation to the progressive, proportional, and regressive nature of taxes.

• Taxes

  • Examples of an indirect tax include sales tax and VAT (value added tax).
  • Progressive Tax: The more a person earns, the higher the tax rate.
  • Generally in a progressive tax system, income is divided into "brackets. " For example, assume a tax system divides earners into people two groups.
  • Regressive Tax:In a regressive tax system, poorer families pay a higher tax rate.
  • Categorize types of taxes into ad valorem taxes and excise taxes

• Tax Rate

  • The tax rate is the amount of tax expressed as a percentage.
  • In a tax system, the tax rate describes the ratio at which a business or person is taxed .
  • An average tax rate is the ratio of the amount of taxes paid to the tax base (taxable income or spending).
  • To calculate the average tax rate on an income tax, divide the total tax liability by the taxable income.
  • The marginal tax rate may increase or decrease as income or consumption increases, although in most countries the tax rate is progressive in principle.

• Financing State and Local Government

  • Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.
  • State and local income tax rates vary widely by jurisdiction and many are graduated, or increase progressively as income levels increase.
  • State taxes are generally treated as a deductible expense for federal tax computation.
  • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
  • Property tax rules and rates vary widely.

• Financing the US Government

  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • The following is a list of taxes in common use by governmental authorities:
  • Excise tax: tax levied on production for sale, or sale, of a certain good.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • Capital gains tax: tax on increases in the value of owned assets.

• Fiscal Policy -- Budget and Taxes

  • Most debates about the income tax today revolve around three issues: the appropriate overall level of taxation; how graduated, or "progressive" the tax should be; and the extent to which the tax should be used to promote social objectives.
  • From the outset, the income tax has been a progressive levy, meaning that rates are higher for people with more income.
  • Most Democrats favor a high degree of progressivity, arguing that it is only fair to make people with more income pay more in taxes.
  • Many Republicans, however, believe a steeply progressive rate structure discourages people from working and investing, and therefore hurts the overall economy.
  • The Tax Reform Act replaced the previous law's 15 tax brackets, which had a top tax rate of 50 percent, with a system that had only two tax brackets -- 15 percent and 28 percent.

• What Taxes Do

  • Taxes are the primary source of revenue for most governments.
  • Taxes are most readily understood from the perspective of income taxes or sales tax, although there are many other types of taxes levied on both individuals and firms.
  • Congress enacts these tax laws, and the IRS enforces them.
  • Governments use different kinds of taxes and vary the tax rates.
  • This type of taxation is referred to as progressive taxation because the tax liability increases in proportion to income.

• Individual Taxes

  • In U.S. constitutional law, direct taxes refer to poll taxes and property taxes, which are based on simple existence or ownership.
  • Federal and many state income tax rates are graduated or progressive–they are higher (graduated) at higher levels of income.
  • These include income tax witholding, social security and medicare taxes, and unemployment taxes.
  • Sales tax is calculated as the purchase price times the appropriate tax rate.
  • The estate tax is an excise tax levied on the right to pass property at death.

• Tax Deductions

  • A tax deduction is a reduction of the amount of income subject to tax.
  • After-tax cost = 1,000 x (1-0.35), so after-tax cost = 650
  • A tax deduction is a sum that can be removed from tax calculations.
  • Corporate taxes in the United States are considered to be progressive.
  • For example, a tax credit of $1,000 reduced taxes owed by $1,000, regardless of the marginal tax rate.