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Encyclopedia > Graduated income tax

A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. The term "progressive tax" can be applied to any type of tax. It is frequently applied in reference to income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income. The term progressive refers to the way the rate progresses from low to high. Over time the term has also been associated with the concepts of modern or liberal. A tax (also known as a duty) is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... An income tax is a tax levied on the financial income of persons, corporations or other legal entities. ... Disposable income is the amount of an individuals total income left after taxes, plus any transfer payments (grants) received from the government or elsewhere. ...


The opposite of a progressive tax is a regressive tax, where the amount of the tax is smaller as a percentage of income for people with larger incomes than it is for those with lower incomes. Many taxes other than the income tax tend to be regressive, such as most sales taxes, since persons with lower income spend a larger portion of their income. Other examples of regressive taxes include social security taxes -- in part because they exclude interest, rent, dividends, capital appreciation and other kinds of income common for the affluent -- and statutory excise taxes. To meet Wikipedias quality standards, this article or section may require cleanup. ... A sales tax is an excise tax on the privilege of selling or renting certain property or services in a state or locality. ... For specific national programs, see Social Security (United States), National insurance (UK), Social Security (Sweden) Social security primarily refers to a field of social welfare concerned with social protection, or protection against socially recognized conditions, including poverty, old age, disability, unemployment, families with children and others. ...


A flat tax is a generic type of tax. When applied to income it is called a proportional tax, where the tax amount is fixed as a percentage of income. A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. ...

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Early proponents of progressive taxation

The idea of a progressive income tax has garnered support from economists and political scientists of many different ideologies. Adam Smith alluded to progressive taxation in The Wealth of Nations. Smith argued that "the expense of defending the society, and that of supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities." As an example of this, Smith advocated a progressive tax upon modes of transportation, writing: "When the toll upon carriages of luxury, upon coaches, post-chaises, &c. is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, waggons, &c. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of heavy goods to all the different parts of the country."[1] An ideology is a collection of ideas. ... Adam Smith, FRSE, (baptised and probably born June 5, 1723 O.S. (June 16 N.S.) – July 17, 1790) was a Scottish political economist and moral philosopher. ... Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of the Scottish economist Adam Smith, published in 1776 during the Scottish Enlightenment. ... // Original meaning and etymology The original meaning of the term coach was: a horse-drawn vehicle designed for the conveyance of more than one passenger — and of mail — and covered for protection from the elements. ... A simple wooden cart in Australia A cart transporting watermelons in Harbin, China. ... A wagon (in old British English waggon) is a wheeled vehicle, ordinarily with four wheels, usually pulled by an animal such as a horse, mule or ox, which was used for transport of heavy goods in the past. ...


Likewise, in 1811, Thomas Jefferson advocated tariffs on the ground that they constituted a form of progressive taxation: "We are all the more reconciled to the tax on importation, because it falls exclusively on the rich...In fact, the poor man in this country who uses nothing but what is made within his own farm or family, or within the United States, pays not a farthing of tax to the general government...the farmer will see his government supported, his children educated, and the face of his country made a paradise by the contributions of the rich alone..."[2] Thomas Jefferson (April 13, 1743 N.S. – July 4, 1826) was the third President of the United States (1801–1809), principal author of the Declaration of Independence (1776), and an influential founder of the United States. ...


Later, Smith's opposite number, Karl Marx, also argued for a progressive tax in The Communist Manifesto: "In the most advanced countries the following will be pretty generally applicable:..a heavy progressive or graduated income tax."[3] Karl Heinrich Marx (May 5, 1818, Trier, Germany – March 14, 1883, London, England) was an immensely influential philosopher from Germany, a political economist, and a socialist revolutionary. ... The Communist Manifesto (German: ) was first published on February 21, 1848, and is one of the worlds most influential political tracts. ...

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Contradictions in interpreting early liberal thinkers

Whether Smith or Jefferson are directly arguing for actual progressive taxes here is still in debate. For example, Smith's quote "the expense of defending the society, and that of supporting the dignity of the chief magistrate, are both laid out for the general benefit of the whole society. It is reasonable, therefore, that they should be defrayed by the general contribution of the whole society, all the different members contributing, as nearly as possible, in proportion to their respective abilities" suggests that everyone pay taxes, not just the poor. Furthermore, in proportion to their abilities does not suggest in incremental proportion to an increase of income. Only that the wealthy pay more simply by being more productive. What was truly progressive about early liberal thinking on taxes, was that they, unlike conservatives of their time, wished that the wealthy aristocracy pay taxes just as the middle and poor classes historically had.


Furthermore, Smith's quotation on taxing carriages is in fact suggesting that the vanity of the rich, which causes them to desire carriages decorated heavily with ornaments which in turn causes the vehicle to be heavier than a poor man's wagon, to be taxed by the weight of the carriage. Thus the rich pay because their vehicle is heavier not because they are rich.


In regards to Thomas Jefferson's quote, this can be seen as a reply to the more free market oriented concern for tariffs in general. Tariffs harm the poor more greatly than they do the rich, meaning they are a considered by economists to be a regressive tax. Therefore Jefferson’s reply that the poor consume only what they produce is his evidence that tariffs will not harm them, not an argument for progressive taxation itself, but a counterargument to the idea that tariffs are regressive. A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy...

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Reasons to implement progressive tax

Many of the arguments for progressive taxation are related to welfare economics Welfare economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution consequences associated with it. ...

  • If the utility gained from income exhibits diminishing marginal returns, as many psychologists assert (see Weber-Fechner law), then for the tax burden to be shared in a utilitarian way the tax-bill must increase non-linearly with income.
  • As income levels rise, levels of consumption tend to fall. Thus it is often argued that economic demand can be stimulated by reducing tax burden on lower incomes while raising the burden on higher incomes.
  • It is also argued that people with higher income tend to have a higher percentage of that in disposable income, and can thus afford a greater tax burden (this is the “vertical equity” argument). A person making exactly enough money to pay for food and housing cannot afford to pay any taxes without it causing material damage, while someone making twice as much can afford to pay up to half their income in taxes. A tax that actually took all income above some specified subsistence level would imply a marginal tax rate of 100%, a case to which the arguments against progressive taxation apply most strongly (see below).
  • Societies (such as Norway, and the United Kingdom) have occasionally set the top rate of earned income tax above the revenue-maximizing rate. This was a political choice, presumably based on the principle that equality was more socially important than tax income or GDP.
  • If leisure is a superior good for very high earners, then the income effect may act as a disincentive to work. In this case, high marginal tax rates are critical to keep the most productive members of society working.
  • A progressive tax is an automatic stabilizer in the sense that if a person were to suffer a decrease in wages due to a recession then the money regained by being in a lower tax bracket lessens this blow.
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In economics, utility is a measure of the happiness or satisfaction gained consuming good and services. ... In economics, diminishing returns is the short form of diminishing marginal returns. ... The Weber - Fechner law attempts to describe the relationship between the physical magnitudes of stimuli and human perception of the intensity of stimuli. ... Utilitarianism is a suggested theoretical framework for morality, law and politics, based on quantitative maximisation of some definition of utility for society or humanity. ... To do: 20th century mathematics chaos theory, fractals Lyapunov stability and non-linear control systems non-linear video editing See also: Aleksandr Mikhailovich Lyapunov Dynamical system External links http://www. ... For equity as the value of an ownership interest in property, see ownership equity or shareholders equity. ... In the tax system and in economics, the marginal tax rate refers to the increase in ones tax obligation as ones taxable income rises: marginal tax rate = Δ(tax obligation)/Δ(taxable income) This can be measured either by looking at the published tax tables (to get the official marginal... Inequity aversion is the preference for fair rewards and fairplay in Anthropology (in the sub-disciplines sociology, economics, sociobiology, psychology, Evolutionary psychology, and primate behaviourology). ... The middle class (or middle classes) comprises a social group once defined by exception as an intermediate social class between the nobility and the peasantry. ... In economics, the income elasticity of demand measures the responsiveness of the quantity demanded of a good to the income of the people demanding the good. ... Superior goods make up a larger proportion of consumption as income rises, and as such are a type of normal goods in consumer theory. ... Consumer theory relates preferences, indifference curves and budget constraints to consumer demand curves. ... In economics, an automatic stabilizer is a goverment policy of taxes and transfer payments that stabilize GDP without requiring policy-makers to take explicit action. ...

Arguments against implementation of a progressive tax

The classical argument against progressive taxation runs as follows:

The diminishing returns argument applies to the fraction of income used for present consumption. As income rises, diminishing returns implies that a smaller and smaller fraction of income will be spent on consumption goods. The remaining income will (of necessity) be used to purchase capital goods. This acts as a form of positive feedback that in turn yields more income for capital spending. Meanwhile (and because) these capital goods induce a decline in the costs of production which has the effect of raising real wages generally and implicitly raising the general standard of living. The income paid back on the capital helps create the disincentive to consume that creates capital spending. Thus, those capitalists who effectively manage their property are rewarded and given control of more (newly created) property, of which they are increasingly less inclined to consume and increasingly more inclined to purchase capital goods and thus further elevate the general standard of living by driving down the costs of production. As they acquire more capital goods, eventually their ownership outstrips their ability to manage and oversee what they own; however, they only control as many capital goods as can be attributed to the income of their prior capital---which previously did not exist. Therefore, their ownership does not negatively contribute to the general standard-of-living relative to counterfactual state of them not purchasing those goods. It would thus be misleading to argue that redistributing their capital may yield further increases in the standard-of-living. Doing so may well cause that effect, but doing so neglects that it was the assumption that redistribution would not happen that induced the accumulation of capital.

— Eugen von Böhm-Bawerk, Karl Marx and the Close of his System, 1896) Eugen von Böhm-Bawerk Eugen von Böhm-Bawerk (February 12, 1851 – August 27, 1914) made important contributions to the development of Austrian economics. ...

  • Progressive taxes lower savings rates. Thus, some argue against progressive taxation because they believe it shifts the total economic production of society away from capital investments (tools, infrastructure, training, research) and toward present consumption goods--this could happen because high-income earners tend to pay for capital goods (through investment activities) and low-income earners tend to purchase consumables. Smithian and neo-classical growth theory says that spending more on consumption goods and less on capital goods will slow the rise of the standard of living, and possibly even reduce it since capital goods increase future production possibilities.

To put this in neo-classical terms: high-earners have a lower marginal propensity to consume; so shifting the tax-burden away from them will increase the aggregate savings rate, which should increase steady state growth (if the savings rate is initially too low). In economics, capital goods refer to real products that are used in the production of other products but are not incorporated into the new product that is derived from the production of the older product. ... In economics Final goods are goods that are ultimately consumed rather than used in the production of another good. ... Adam Smith, FRSE, (baptised and probably born June 5, 1723 O.S. (June 16 N.S.) – July 17, 1790) was a Scottish political economist and moral philosopher. ... Exogenous growth model, also known as the Neo-classical model or Solow growth model is a term used to sum up the contributions of various authors to a model of long-run economic growth within the framework of neoclassical economics. ... The Standard of living refers to the quality and quantity of goods and services available to people and the way these services and goods are distributed within a population. ... In economics, the production possibility frontier (the PPF, also called the production possibilities curve (PPC) or the “transformation curve”) is a graph that depicts the trade-off between any two items produced. ... Neoclassical economics is the grouping of a number of schools of thought in economics. ... The marginal propensity to consume (MPC) refers to the increase in personal consumer spending (consumption) that occurs with an increase in disposable income (income after taxes and transfers). ... In common usage, saving generally means putting money aside, for example, by putting money in the bank or investing in a pension plan. ... For alternative meanings see steady state (disambiguation). ... In economics, the Golden Rule savings rate is the rate of savings which maximizes steady state growth consumption in the Solow growth model. ...

  • Progressive taxes create a work disincentive. Consider again someone who makes twice the minimum required to live on, but pays all income above the minimum living threshold in taxes. Such a person had no monetary incentive at all to try to increase his or her income above the base level[4]. It is presumed that the high-rate earner will therefore not work (because leisure gives higher utility). However, this assumption can be challenged in at least two ways: Firstly, the majority of top-rate tax payers are salary-earners, and have no freedom to set their own hours, and secondly, the assumption that they prefer leisure to work may not apply, in which case they may be as productive when their entire income is taken by the government as when it is not.

Another common argument is that progressive taxation acts as a disincentive to work. In comparing this assumption with the claim that progressive taxes work the other way, and encourage higher participation at the top end, econometric studies are inconclusive. It may be that there is no consistent aggregate effect either way, and that the incentive/disinctive argument for/against progressive taxation are weak. A salary is a form of periodic payment from an employer to an employee, which is specified in an employment contract. ... Econometrics literally means economic measurement. It is the branch of economics that applies statistical methods to the empirical study of economic theories and relationships. ...

    • Theoretically, there are two contrasting forces at work here. One is a substitution effect whereby work effort is decreased with higher tax rates as the relative gains from engaging in leisure (which is not taxed) increase. The other is an income effect whereby work effort is increased as the worker must work more hours to attain the same wage in the face of higher taxes. It is impossible to predict, a priori, which effect will dominate. The majority of econometric studies on the question suggest that, in aggregate, the two effects roughly cancel out.
  • Brain drain and tax avoidance. High progressive taxes may encourage emigration because taxes are not internationally harmonized, so very high earners are sometimes able to relocate in order to pay less tax, or find tax havens for their income. Unlike the opposing income effect and substitution effect of leisure which may make tax progressivity neutral in terms of working hours, the emigration rate can only increase with the top rates of tax.
    • The differential in the higher rates of tax between the United States and Europe are cited as a factor in the "brain drain" of high-earners to America in the 1960s, and is considered an important influence on modern "economic migration".
    • The increasing energy expended on tax avoidances which occur with greater progressivity produces an increase in the work of accountants and lawyers. Because tax avoidance creates no net wealth this work is unproductive, and can make taxes on the rich less efficient than on the middle class, who have less motivation to exploit tax loopholes.
  • Justice in representation. Economic equity is sometimes used to argue against progressive taxation, on the grounds of representation being out-of-proportion to taxation: While the top 5% in income in most countries pay over half the taxes[5] they only have 5% of the voting weight. This argument can be reversed into the plutocratic case that if tax is to be progressive it should be accompanied by greater say in elections for those who contribute most.
  • Politics of envy. The New York Times in June 2005 ran a high-profile campaign arguing that at the very-high incomes United States tax-payers actually face regressive taxation rates, equating income tax across wage and rental incomes. For instance, they project that if the Bush tax cuts are made permanent:
“By 2015, those making between $80,000 and $400,000 will pay as much as 13.9 percentage points more of their income in federal taxes than those making more than $400,000.” [6]

In response to this, Gregory Mankiw has written to the editor of the New York Times, arguing that wealth condensation is a cyclical phenomenon and that tax rates should not be adjusted to stabilize the share of income going to the top 0.1 percent of earners in boom years and depressions. He closes with another recurring argument against progressive taxes: Consumer theory relates preferences, indifference curves and budget constraints to consumer demand curves. ... Consumer theory relates preferences, indifference curves and budget constraints to consumer demand curves. ... A priori is originally a Latin phrase meaning from the former or from what comes before. However, several different uses of the term have developed in English: A priori (law) - adj. ... It has been suggested that this article or section be merged with Immigration. ... Tax competition is a governmental strategy of attracting foreign direct investment and high value human resources by minimizing the overall taxation level. ... A tax haven is a place where certain taxes are levied at a low rate or not at all. ... Consumer theory relates preferences, indifference curves and budget constraints to consumer demand curves. ... Consumer theory relates preferences, indifference curves and budget constraints to consumer demand curves. ... In mathematics, functions between ordered sets are monotonic (or monotone, or even isotone) if they preserve the given order. ... World map showing Europe Political map (neighboring countries in Asia and Africa also shown) Europe is one of the seven traditional continents of the Earth. ... A brain drain or human capital flight is an emigration of trained and talented individuals (human capital) for other nations or jurisdictions, due to conflict or lack of opportunity or health hazards where they are living. ... The 1960s decade refers to the years from 1960 to 1969, inclusive. ... This article is about non-human migration. ... This article contrasts tax evasion, tax avoidance and tax mitigation. ... Accountancy (British English) or accounting (American English) is the process of maintaining, auditing, and processing financial information for business purposes. ... English barrister 16th century painting of a civil law notary, by Flemish painter Quentin Massys. ... For equity as the value of an ownership interest in property, see ownership equity or shareholders equity. ... A plutocracy is a government system where wealth is the principal basis of power (from the Greek ploutos meaning wealth). ... The New York Times is an internationally known daily newspaper published in New York City and distributed in the United States and many other nations worldwide. ... 2005 (MMV) was a common year starting on Saturday of the Gregorian calendar. ... A regressive tax is a tax which takes a larger percentage of income from people whose income is low. ... // Look up bush in Wiktionary, the free dictionary. ... A tax cut is a reduction in the rate of tax charged by a government, for example on personal or corporate income. ... Categories: Stub | 1958 births | Economists ... Wealth condensation is a theoretical process by which, in certain conditions, newly-created wealth tends to become concentrated in the possession of already-wealthy individuals or entities. ... WORLD OF WARCRAFT IS THE BEST GAME EVER INVENTED AND PLAY IT. IF YOU DONT PLAY WORLD OF WARCRAFT, YOU ARE A nOOb. ...

“If policy makers' primary goal is … economic prosperity for all, they should avoid focusing on the politics of envy.” [7]

Opponents counter that greed, such as they see as the primary motivation behind the tax cuts for the wealthy supported by Mankiw, is documented as being far more harmful to society than the sort of envy which might motivate the poor and middle class to support progressive taxation, because, for example, greed is almost always implicated in large-scale financial crimes (e.g. corporate tax evasion), while envy is rarely if ever the motivation for large-scale crime. Class envy is a pejorative term sometimes used to describe criticisms of the rich and powerful by the poor and less powerful. ...

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Marginal and average tax rates

The rate of tax can be expressed in two different ways, the marginal rate expressed as the rate on each additional piece of income and the average rate (or the effective rate) expressed as the total tax paid divided by total income.


In most progressive tax systems, both rates will rise as income rises, though there may be income ranges where the marginal rate will be constant.


However, with a system of negative income tax, refundable tax credits, or income-tested welfare benefits, it is possible for marginal rates to fall as income rises: this can still be seen as progressive providing that the marginal rate is higher than the average rate at any particular level of income, since the average rate will rise as income rises; high marginal rates for those on low incomes can lead to a poverty trap within a progressive system, even if they face negative average rates. In economics, a negative income tax (abbreviated NIT) is a method of tax reform that is popular among economists but has never been fully implemented. ... Refundable tax credit refers to the concept of giving tax refunds to individuals in excess of the amount of tax actually paid. ... The welfare trap is a name for the phenomenon by which taxation and welfare systems jointly contribute to keep people on social insurance. ...

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Personal Income Tax Brackets

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United States: History of changes in progressivity in Federal income tax

The Federal income tax rates in the United States have varied widely since 1913. For example, in 1954 the Congress imposed a Federal income tax on individuals, with the tax imposed in layers of 24 income brackets at tax rates ranging from 20% to 91% (for a chart, see Internal Revenue Code of 1954). Here is a partial history of changes in the U.S. Federal income tax rates for individuals (and the income brackets) since 1979: The United States Internal Revenue Code of 1954 temporarily extended the 5 percentage point increase in corporate tax rates through March 31, 1955, increased depreciation deductions by providing additional depreciation schedules, and created a 4 percent dividend tax credit for individuals. ...

Year Income brackets Rate range
1979 15 brackets 14%-70%
1982 12 brackets 12%-50%
1987 5 brackets 11%-38.5%
1988 3 brackets 15%-33%
1991 3 brackets 15%-31%
1993 5 brackets 15%-39.6%
2001 5 brackets 15%-39.1%
2002 6 brackets 10%-38.6%
2003-2005 6 brackets 10%-35%

Source: Internal Revenue Service, Instructions for Form 1040 (for each year listed) Seal of the Internal Revenue Service The Internal Revenue Service (IRS) is the United States government agency that collects taxes and enforces the tax laws. ... The Form 1040 is the starting form for personal income tax returns filed in the United States. ...

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United States: Year 2005 income brackets and tax rates

As of 2005 there are six "tax brackets" used to calculate the percentage of taxable income (of individuals) that must be paid to the United States Treasury. For the unmarried, these percentages are: 2005 (MMV) was a common year starting on Saturday of the Gregorian calendar. ... The United States Department of the Treasury is a Cabinet department, a treasury, of the United States government established by an Act of U.S. Congress in 1789 to manage the revenue of the United States government. ...

  • Income from $1 to $7,300, tax bracket is 10%
  • Income from $7,301 to $29,700, tax bracket is 15%
  • Income from $29,701 to $71,950, tax bracket is 25%
  • Income from $71,951 to $150,150, tax bracket is 28%
  • Income from $150,151 to $326,450, tax bracket is 33%
  • Income $326,451 and above, tax bracket is 35%

If an individual's taxable income falls within a particular tax bracket, the individual pays the listed percentage of income on each dollar that falls within that monetary range. For example, a person who earned $10,000 in 2003 would be liable for 10% of each dollar earned from the 1st dollar to the 7,300th dollar, and then for 15% of each dollar earned from the 7,301st dollar to the 10,000th dollar, for a total of $1,135. This ensures that every rise in a person's salary results in an increase of after-tax salary.


Contrary to a popular belief, there is no point at which one is better off earning less money (or giving to charity to obtain deductions). That is, because the marginal tax rate is always far less than 100%, an individual is financially "better off" realizing "more" income than "less" income, even though the marginal tax rate applicable to the highest level of income of that person increases as income increases.

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United States: Example of a tax computation

Income tax:

  • $30,000 (gross income)
  • $7,300 * 0.10 = $730
  • ($29,700 - $7,300) * 0.15 = $3,360
  • ($30,000 - $29,700) * 0.25 = $75
  • Total income tax = $4,165 (13.88% of income)

FICA (payroll) tax (note that an equal amount is paid by the employer): Federal Insurance Contributions Act (FICA) tax is a United States tax levied in an equal amount on employees and employers to fund old-age, survivors, and disability insurance portion of the Social Security system and the hospital insurance portion ( Medicare). ...

  • $30,000 (gross income)
  • $30,000 * 0.062 = $1,860 (Social Security portion)
  • $30,000 * 0.0145 = $435 (Medicare portion)
  • Total FICA tax = $2,295 (7.65% of income)
  • Total federal tax = $6,460 (21.53% of income)
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New Zealand

New Zealand has the following income tax brackets (as of May 2005). All values in New Zealand dollars. (With earner levy included[8]): The New Zealand dollar (ISO 4217: NZD, sometimes NZ$ and often informally known as the Kiwi dollar) is the official currency of New Zealand, the Cook Islands, Niue, Tokelau, and the Pitcairn Islands. ...

  • 19.5% up to $38,000
  • 33% from $38,001 to $60,000
  • 39% above $60,001
  • 49% when the employee does not complete a declaration form (IR330)

In New Zealand the income is taxed by the amount that falls within each tax bracket. In other words if a person earns $60,000 they will only pay 34.2% on the amount that falls between $38,001 and $60,000 rather than paying this on the full $60,000.

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Problems, alternatives, similar concepts

The tax bracket system has a few problems, however. Bracket creep occurs when the amounts are not tied to the cost of living; due to inflation tax rates would thus slowly rise. Bracket creep describes the process by which inflation pushes wages and salaries into higher tax brackets. ... A cost-of-living index measures differences in the price of goods and services over time. ...


An alternate system of having taxes with an increasing relative rate is a negative income tax, which eliminates the step problem. In economics, a negative income tax (abbreviated NIT) is a method of tax reform that is popular among economists but has never been fully implemented. ...


Tax progressivity or regressivity should not be confused with two similar concepts: tax neutrality and tax incidence. Tax neutrality refers to whether similar things are taxed in similar ways; if for example taxes on gasoline and diesel are different then this will probably lead to a distortion in demand between the two fuels. If the tax system does not distort demand then it is said to be neutral. Tax incidence refers to what group ultimately bears the burden of a tax. For example, sales taxes, which are nominally applied to businesses, are passed through to consumers as higher prices - although the degree to which a sales tax is passed on to the consumer depends on elasticity, and one can measure the effective progressivity of a tax by income group as well as breaking the impact down by geographic area or other factors. First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ... Gasoline, also called petrol, is a petroleum-derived liquid mixture consisting primarily of hydrocarbons and enhanced with benzenes to increase octane ratings, used as fuel in internal combustion engines. ... Diesel or diesel fuel is a specific fractional distillate of fuel oil (mostly petroleum) that is used as fuel in a diesel engine invented by German engineer Rudolf Diesel. ... A sales tax is an excise tax on the privilege of selling or renting certain property or services in a state or locality. ... One typical application of the concept of elasticity is to consider what happens to consumer demand for a good (for example, a product) when prices increase. ...

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See also

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First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ... This article or section is in need of attention from an expert on the subject. ... One typical application of the concept of elasticity is to consider what happens to consumer demand for a good (for example, a product) when prices increase. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... An income tax is a tax levied on the financial income of persons, corporations or other legal entities. ... ° It has been suggested that MOMS and VAT registered be merged into this article or section. ... A sales tax is an excise tax on the privilege of selling or renting certain property or services in a state or locality. ... The FairTax Book, co-authored by Neal Boortz and John Linder, was published on August 2, 2005, as a tool to increase public support for the FairTax Plan. ... The National Economic Stabilization And Recovery Act or NESARA is a proposal for legislation to reform the fiscal policy, monetary policy, and monetary system, of the United States of America. ...

Notes and references

  1. ^ Smith, Adam (1904). “Chapter 1: Of the Expences of the Sovereign or Commonwealth”, Edwin Cannan An Inquiry into the Nature and Causes of the Wealth of Nations Book V: Of the Revenue of the Sovereign or Commonwealth, 5th, London: Methuen and Co., Ltd..
  2. ^ Federal Tax History. Workingpeople.org.
  3. ^ Marx, Karl. Section II. Proletarians and Communists. Communist Manifesto.
  4. ^ When the ‘optimal’ tax rates are derived in economic models it is almost always assumed that: (1) Increasing labour leads to increasing dis-utility, (2) the more ‘productive’ high-earners will make a choice between consumption and work that makes them at least as well off as lower-rate tax payers (a “self-selection constraint”). With these two assumptions, mathematical models maximizing various social ‘objectives’ can be designed but (excluding compulsion) all require some increase in consumption for higher-tax payers. For an example of this constraint in the most redistributive model (the Rawlsian model) see page 4 of: Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria from Jonathan Hamilton and Pierre Pestieau (2002).
  5. ^ . Tax breakdown for the United States from the IRS which shows this pattern. The Economist magazine tends to rate the U.S. tax codes as being surprisingly progressive (below the levels of the super-rich) – perhaps because U.S. citizens rarely emigrate or move away from urban centres. However, in comparison to European social democratic countries, U.S. rates are certainly not unusually progressive, and many countries have any even greater proportional "disenfranchisement" of the rich.
  6. ^ Quote from the June 7, 2005 NYT editorial: “The Bush Economy” a series of articles on the subject of effectively falling tax rates for the “super-rich” were published by the Times in June 2005.
  7. ^ Quotation from the reply to the NYT claim of recessive taxation by professor N. Gregory Mankiw, the former chairman of President Bush's Council of Economic Advisers, (2003-2005).
  8. ^ The actual tax rates on the NZ Inland Revenue site (with examples).
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A diagram of the IS/LM model In economics, a model is a theoretical construct that represents economic processes by a set of variables and a set of logical and quantitative relationships between them. ... In economics, utility is a measure of the happiness or satisfaction gained consuming good and services. ... A Theory of Justice is a book of political and moral philosophy by John Rawls. ... For album titles with the same name, see 2002 (album). ... An economist is an individual who studies, develops, and applies theories and concepts from economics, and writes about economic policy. ... This article is about the continent. ... Social democracy is a political ideology emerging in the late 19th and early 20th centuries from supporters of Marxism who believed that the transition to a socialist society could be achieved through democratic evolutionary rather than revolutionary means. ... Disenfranchising refers to the removal of the ability to vote from a person or group of people. ... June 7 is the 158th day of the year in the Gregorian calendar (159th in leap years), with 207 days remaining. ... 2005 (MMV) was a common year starting on Saturday of the Gregorian calendar. ... The New York Times is an internationally known daily newspaper published in New York City and distributed in the United States and many other nations worldwide. ... N. Gregory Mankiw Nicholas Gregory Mankiw (born February 3, 1958) is a macroeconomist. ... 2003 (MMIII) was a common year starting on Wednesday of the Gregorian calendar. ... 2005 (MMV) was a common year starting on Saturday of the Gregorian calendar. ...

External links

  • Revised 2003 Tax Rate Schedules
  • Income Tax Rates for Individuals - New Zealand
  • What's Wrong with the Progressive Income Tax
  • http://www.monbiot.com/archives/2005/01/11/punitive-and-it-works/ A Guardian article by George Monbiot, on the Swedish tax system. It focuses on its positive effect to the country’s economic competitiveness, while at the same time reducing inequality. The article cites sources such as the United Nations Development Programme; Human Development Report 2004, the U.S. Department of Labor Bureau of Labor Statistics (1960-1998), The Economist, 2004. Pocket World in Figures, 2005 edition and the Institute of Social Analysis http://www.columbia.edu/~sr793/papers.html.

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