Wednesday, March 25, 2015

What Are The Pros & Cons Of A Progressive Tax

There are many theories of taxation and just as many arguments about which is the most efficient and why. The United States currently uses a progressive system of taxation, which means people of different income levels are taxed at different rates.


Significance


A progressive tax levies a higher tax rate on those earning larger amounts of money than on those who earn less money. Your income determines which tax bracket you qualify for, and the wealthier members of society bear more of the overall tax burden than the poorer citizens.


Function


Progressive taxation helps protect people during a recession because if their income drops, they fall into a lower tax bracket. This means they will owe less money to the government.


Distribution


According to the Tax Policy Center, the top 1 percent of wage earners in the United States were taxed at a rate of 31.6 percent in 2008, while the lowest quintile of earners was taxed at a rate of 1.1 percent. Many consider this beneficial because it means that those who can afford to pay more taxes do, and those who are poor can spend more of their wages on essentials rather than on taxes.


Effects


A highly progressive taxation system may discourage people from entering high-paying professions because so much of their potential income would be taken away in taxes.


Arguments Against Progressive Taxation


According to CATO, a nonprofit think-tank favoring a free market and limited government, progressive taxation violates the Constitution, which promotes equal rights for citizens and limits the powers of the federal government. Many people who do not favor progressive taxation argue that taxing one group at a greater rate than another group does not constitute strictly equal treatment.

Tags: less money, progressive taxation, rate percent, taxed rate, taxed rate percent, United States