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Encyclopedia > Progressive tax
Public finance
This article is part of the series:
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Tax advantage

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A progressive tax is a tax imposed so that the effective tax rate increases as the amount to which the rate is applied increases. The term "progressive tax" describes a distribution effect, which can be applied to any type of tax system (income or consumption) that meets the definition. 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. The term can also apply to adjustment of the tax base by using tax exemptions, tax credits, or selective taxation that would create progressive distributional effects. For example, a tax on luxury goods and the exemption of basic necessities may be described as having progressive effects as it increases a tax burden on high end consumption and decreases a tax burden on low end consumption. The opposite of a progressive tax is a regressive tax, where the tax rate decreases as the amount to which the rate is applied increases. In between is a proportional tax, where the tax rate is fixed as the amount to which the rate is applied increases. Progressive taxes reduce the tax incidence of people with smaller incomes, as they shift the incidence disproportionately to those with higher incomes. This article does not cite any references or sources. ... Image File history File linksMetadata Size of this preview: 800 × 600 pixelsFull resolution (2816 × 2112 pixel, file size: 2. ... Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... This article is the current Taxation Collaboration of the Month. ... A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ... Stamp duty is a form of tax that is levied on documents. ... A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Value added tax (VAT), or goods and services tax (GST), is... 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. ... The tax, tariff and trade laws of a political region, state or trade bloc determine which forms of consumption and production tend to be encouraged or discouraged. ... 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. ... A tax (also known as a dutyor Zakat in islamic economics) is a charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ... 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. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax... Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_the_British_Virgin_Islands. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_the_Netherlands. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Peru. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_Tanzania. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. ... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... Not to be confused with Political economy. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Monetary policy is the process by which the government, central bank... In macroeconomics, money supply (monetary aggregates, money stock) is the quantity of currency and money in bank accounts in the hands of the non-bank public available within the economy to purchase goods, services, and securities. ... Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ... Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ... A budget deficit occurs when an entity (often a government) spends more money than it takes in. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        Government debt (also known as public debt or national debt) is... This article does not cite any references or sources. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        For other uses of this word, see tariff (disambiguation). ... A trade pact is a wide ranging tax, tariff and trade pact that usually also includes investment guarantees. ... Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... This article does not cite any references or sources. ... For other uses, see Bank (disambiguation). ... “Taxes” redirects here. ... The effective tax rate is the amount of income tax an individual or firm pays divided by the individual or firms total taxable income. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        An income tax is a tax levied on the financial income... For the album by punk rock band, Snuff, see Disposable Income (album) Disposable income is the total amount of income an individual makes after direct taxes. ... A tax exemption is an exemption to the tax law of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone. ... This article or section should be merged with tax credit Tax credits are credits on tax payable given by the government for specific reasons. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax... 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. ... 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. ...

Contents

Early proponents

The idea of a progressive income tax has garnered support from economists and political scientists of many different ideologies - ranging from Adam Smith to Karl Marx. Many authorities trace the origin of modern progressive taxation to Adam Smith, who wrote in The Wealth of Nations: An ideology is a collection of ideas. ... For other persons named Adam Smith, see Adam Smith (disambiguation). ... Karl Heinrich Marx (May 5, 1818 – March 14, 1883) was a 19th century philosopher, political economist, and revolutionary. ... 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 on March 9, 1776 during the Scottish Enlightenment. ...

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.[1]

A century later, Karl Marx argued for a progressive income tax in The Communist Manifesto: "In the most advanced countries the following will be pretty generally applicable:..a heavy progressive or graduated income tax."[2] This article or section does not cite any references or sources. ...


Reasons for implementation

"The New Man on the Job" — Political cartoon from 1913.
  • 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).
  • Some believe that the wealthy have a disproportionally greater interest in maintaining societal goods typically supported by taxation such as defense and infrastructure, as they have much greater to lose if these fail than do the poor.
  • 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.
  • It is inherent in tax policy that it implements economic and social policy. People who are concerned about a runaway, cancerous character in the global economy, greenhouse gases, etc., see benefits in progressive taxation, both in its braking effect on the economy and in helping shape economic activities towards necessities more effectively than purely monetary or fiscal policies.

Image File history File links Wayne Knight as Newman File history Legend: (cur) = this is the current file, (del) = delete this old version, (rev) = revert to this old version. ... Image File history File links Wayne Knight as Newman File history Legend: (cur) = this is the current file, (del) = delete this old version, (rev) = revert to this old version. ... This early political cartoon by Ben Franklin was originally written for the French and Indian War, but was later recycled during the Revolutionary War An editorial cartoon, also known as a political cartoon, is an illustration or comic strip containing a political or social message. ... Year 1913 (MCMXIII) was a common year starting on Wednesday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Tuesday of the 13-day-slower Julian calendar). ... In economics, utility is a measure of the relative happiness or satisfaction (gratification) gained. ... 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... 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. ... 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

  • Progressive taxes lower savings rates. 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 below the Golden Rule savings rate).
    • 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) 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. ... HELLO EVERYONE!! Steady state is a more general situation than Dynamic equilibrium. ... In economics, the Golden Rule savings rate is the rate of savings which maximizes steady state growth consumption in the Solow growth model. ... Eugen von Böhm-Bawerk Eugen von Böhm-Bawerk (February 12, 1851 – August 27, 1914) made important contributions to the development of Austrian economics. ...

    • 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.
  • 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.[3] 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.
    • 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[4] 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. However, it must be noted that those of higher incomes are more likely to serve in public office, as well as helping to finance politicians with whom they share ideological similarities.
  • Politics of envy. Policymakers are often under a pressure from lower and middle income voters to limit higher incomes by the means of progressive taxation. Some economists argue against inequity aversion: "If policy makers' primary goal is … economic prosperity for all, they should avoid focusing on the politics of envy." (Gregory Mankiw)[5]

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. ... For other persons named Adam Smith, see Adam Smith (disambiguation). ... The Exogenous growth model, also known as the Neo-classical growth 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. ... This article or section does not cite any references or sources. ... 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. ... The terms a priori and a posteriori are used in philosophy to distinguish between two different types of propositional knowledge. ... A memorial statue in Hanko, Finland, commemorating the thousands of emigrants who left the country to start a new life in the United States Emigration is the act and the phenomenon of leaving ones native country to settle in another country. ... 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. ... A monotonically increasing function (it is strictly increasing on the left and just non-decreasing on the right). ... For other uses, see Europe (disambiguation). ... This article is about the emigration term. ... The 1960s decade refers to the years from 1960 to 1969. ... This article contrasts tax evasion, tax avoidance and tax mitigation. ... Accountant, or Qualified Accountant, or Professional Accountant, is a certified accountancy and financial expert in the jurisdiction of many countries. ... For the fish called lawyer, see Burbot. ... Equity is the concept or idea of fairness or justice in economics, particularly in terms of taxation and welfare economics. ... A plutocracy is a government system where wealth is the principal basis of power (from the Greek ploutos meaning wealth). ... 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). ... Class envy is a pejorative term sometimes used to describe criticisms of the rich and powerful by the poor and less powerful. ... Categories: Stub | 1958 births | Economists ... Real income is the income of individuals or nations after adjusting for inflation. ... Income inequality metrics or income distribution metrics are techniques used by economists to measure the distribution of income among members of a society. ...

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 piece of income (or last dollar spent) and the effective (average) 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. 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 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... The effective tax rate is the amount of income tax an individual or firm pays divided by the individual or firms total taxable income. ... In economics, a negative income tax (abbreviated NIT) is a method of tax reform that has been discussed among economists but never fully implemented. ... Refundable tax credit refers to the concept of giving tax refunds to individuals in excess of the amount of tax actually paid. ... This article is about financial assistance paid by government organizations. ... The welfare trap is a name for a situation in which taxation and welfare systems create strong incentives for people to stay on social welfare payments. ...


Measuring Progressivity

The progressivity of a tax can be expressed by its Suits index or the Gini Coefficient. The Suits index of a public policy is a measure of collective progressivity. ... Graphical representation of the Gini coefficient The Gini coefficient is a measure of inequality of income distribution or inequality of wealth distribution. ...


Personal income tax brackets

United States

For more details on this topic, see Income tax in the United States and Taxation in the United States

The progressive aspects of 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). As of 2006, there are six "tax brackets" ranging from 10% to 35% used to calculate the percentage of taxable income (of individuals) that must be paid to the United States Treasury. If 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 taxable income (income after adjustments, deductions, and exemptions) for 2006 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 $1,122.50. Removed from taxable income is the standard deduction and exemption, which was $8,750 for a single unmarried person in 2007. So a person that reported $10,000 in annual income would pay no tax on the first $8,750. This ensures that every rise in a person's salary results in an increase of after-tax salary. The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of all federal taxes paid by taxpayers of various income levels. The data shows the progressive structure of the U.S. federal tax system that reduces the tax incidence of people with smaller incomes, as they shift the incidence disproportionately to those with higher incomes - the top 0.1% of taxpayers by income pay 17.4% of all federal taxes (earning 9.1% of the income), the top 1% pay 36.9% (earning 19%), the top 5% pay 57.1% (earning 33.4%), and the bottom 50% pay 3.3% (earning 13.4%).[7] Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The federal government of the United States imposes a progressive tax on the taxable income of individuals, corporations, trusts, decedents estates, and certain bankruptcy estates. ... Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... 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 2006 (MMVI) was a common year starting on Sunday 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. ... Taxable income is the portion of income that is the subject of taxation according to the laws that determine what is income and the taxation rate for that income. ... Seal of the Internal Revenue Service Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        IRS redirects here. ... 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. ...


However, if the federal taxation rate is compared with the wealth distribution rate, which was studied in A Rolling Tide: Changes in the Distribution of Wealth in the U.S. by Arthur Kennickell at Levy Economics Institute, the net wealth (not only income but also including real estate, cars, house, stocks, etc) distribution of the United States does almost coincide with the share of income tax - the top 1% pay 36.9% of federal tax (wealth 32.7%), the top 5% pay 57.1% (wealth 57.2%), top 10% pay 68% (wealth 69.8%), and the bottom 50% pay 3.3% (wealth 2.8%).[8] Other taxes in the United States with a less progressive structure or a regressive structure, and legal tax avoidance loopholes change the overall tax burden distribution. For example, the payroll tax system is regressive on income with no standard deduction or personal exemptions taxing only the first $97,500 for 2007 from gross wages, and none earned from capital investments or interest. The Center on Budget and Policy Priorities states that three-fourths of U.S. taxpayers pay more in payroll taxes than they do in income taxes.[9] In economics, Distribution of wealth refers to the proportion of capital controlled by a given percentage of a population. ... The Levy Economics Institute of Bard College is located on the campus of Bard College, in Annanadale-on-Hudson, NY. The Institute is housed in Blithewood, a mansion originally designed by an alumnus of the architectural firm of McKim, Mead and White for Andrew Zabriskie in 1899. ... This article contrasts tax evasion, tax avoidance and tax mitigation. ... This article is the current Taxation Collaboration of the Month. ... The Center on Budget and Policy Priorities (CBPP) describes itself as a policy organization . ...


New Zealand

For more details on this topic, see Taxation in New Zealand.

New Zealand has the following progressive income tax brackets (all values in New Zealand dollars with earner levy included): 19.5% up to $38,000, 33% from $38,001 to $60,000, 39% above $60,001, and 49% when the employee does not complete a declaration form (IR330).[10] 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 33% on the amount that falls between $38,001 and $60,000 rather than paying this on the full $60,000. // Income Tax Income tax on earnings is required to be paid to the New Zealand government. ... The New Zealand dollar (ISO 4217: NZD, sometimes NZ$ and often informally known as the Kiwi dollar) is the official currency of New Zealand, the Cook Islands, Niue, Tokelau, and the Pitcairn Islands. ...


Australia

For more details on this topic, see Taxation in Australia.

Australia has the following progressive income tax brackets (all values are in Australian dollars): 0% up to $6000, 15% from $6001 to $25000, 30% from $25001 to $75000, 40% from $75001 to $150000, and 45% tax for any amount over $150000. These taxes are paid throughout Australia. // Main article: Income tax in Australia Only the federal government imposes income taxes on individuals, and this is the most significant source of revenue for this level of government. ... Au. ...


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 has been discussed among economists but never 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. ... Petrol redirects here. ... This article is about the fuel. ... A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ... In economics, elasticity is the ratio of the proportional change in one variable with respect to proportional change in another variable. ...


See also

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 does not cite any references or sources. ... 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. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A regressive tax is a tax imposed so that the tax... A Robin Hood effect is an economic occurance where income is redistributed so that economic inequality is reduced. ... The Suits index of a public policy is a measure of collective progressivity. ...

Notes

  1. ^ Adam Smith, An Inquiry into the Nature And Causes of the Wealth of Nations (1776). Book Five: Of the Revenue of the Sovereign or Commonwealth. CHAPTER II: Of the Sources of the General or Public Revenue of the Society. ARTICLE I: Taxes upon the Rent of House.
  2. ^ Marx, Karl. Section II. Proletarians and Communists. Communist Manifesto.
  3. ^ 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).
  4. ^ . 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.
  5. ^ Reply by Gregory Mankiw to the June 7, 2005 NYT editorial: “The Bush Economy”
  6. ^ http://www.ipi.org/ipi%5CIPIPublications.nsf/PublicationLookupFullTextPDF/7412EB9AFBB4D28786256B4D00738EBE/$File/PR162-Hartman-Redistribution.pdf?OpenElement
  7. ^ Incomes and Politics, Wall Street Journal, September 02, 2006
  8. ^ Kennickell, Arthur (2003-03). A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001. United States Federal Reserve. Retrieved on 2007-09-19.
  9. ^ Kamin, David; Shapiro, Isaac (2004-09-13). Studies Shed New Light on Effects of Administration's Tax Cuts. Center on Budget and Policy Priorities. Retrieved on 2006-07-23.
  10. ^ The actual tax rates on the NZ Inland Revenue site (with examples).

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 relative happiness or satisfaction (gratification) gained. ... A Theory of Justice is a book of political and moral philosophy by John Rawls. ... Also see: 2002 (number). ... Alan Greenspan, former chairman, United States Federal Reserve. ... For other uses, see Europe (disambiguation). ... 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. ... Categories: Stub | 1958 births | Economists ... is the 158th day of the year (159th in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) 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. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era in the 21st century. ... is the 262nd day of the year (263rd in leap years) in the Gregorian calendar. ... Year 2006 (MMVI) was a common year starting on Sunday of the Gregorian calendar. ... is the 204th day of the year (205th in leap years) in the Gregorian calendar. ...

External links

Wikiquote has a collection of quotations related to:
  • Revised 2003 Tax Rate Schedules
  • Income Tax Rates for Individuals - New Zealand
  • The Progressive Income Tax: Theoretical Foundations
  • What's Wrong with the Progressive Income Tax
  • 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.

  Results from FactBites:
 
Progressive tax - Wikipedia, the free encyclopedia (3193 words)
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.
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.
Tax progressivity or regressivity should not be confused with two similar concepts: tax neutrality and tax incidence.
Progressive Taxes, by Joel B. Slemrod: The Concise Encyclopedia of Economics: Library of Economics and Liberty (1852 words)
A progressive tax structure is one in which an individual or family's tax liability as a fraction of income rises with income.
If, for example, taxes for a family with an income of $20,000 are 20 percent of income and taxes for a family with an income of $200,000 are 30 percent of income, then the tax structure over that range of incomes is progressive.
Under the ability-to-pay principle, tax burdens should be related not to what taxpayers receive from government, but rather to their ability to bear the tax burden—that is, to tolerate a sacrifice.
  More results at FactBites »

 
 

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