Sculpture of Karl Marx (foreground), a proponent of progressive taxes; and Friedrich Engels.
A progressive tax is a type of income tax system established so that people with a higher disposable income must pay a higher percentage of their income in taxes than those with low to moderate purchasing power. Historically, progressive taxation has been supported by economists and political scientists ranging from Karl Marx to Adam Smith. However, the concept has its opponents. Libertarians, as well as some conservatives, believe that progressive taxation is a negative policy because it tends to lower the overall savings rate, encourages people to move to countries with more pro-rich fiscal policies, and discourages people from working. to earn higher incomes because they will be forced to pay more taxes.
A monument in honor of Adam Smith, who supported progressive taxes.
In general, the tax system in the United States is classified as using progressive taxes. There are six tax bands that range from 10% to 35%, but the percentage of taxes a person owes is calculated only based on every dollar that falls in a specific currency band. Under this system, the top 10% taxpayers are responsible for generating nearly two-thirds of all income tax revenue. However, the tax system in the United States has been criticized as unfair because the tax cuts made in 2001 and 2003 basically rewarded wealthy investors by reducing the tax burden on gains made from investment income.
China has a progressive tax.
Since a progressive tax system tends to appeal to the average person’s sense of fairness, it should come as no surprise that most countries across the world use some form of progressive taxation. In China, tax bands in the progressive tax system range from 5% for the poorest citizens to 45% for the country’s elite. In Japan, progressive taxes range from 5% to 40%. In Australia, tax bands range from 0% to 45%. In New Zealand, citizens must pay between 19.5% and 49% of their income in taxes. In the UK, progressive taxes range from 20% to 40% of a person’s taxable income.
The US has a progressive income tax.
Regressive taxes are the opposite of progressive taxes. Although a regressive tax appears to be a flat tax at first glance, this system is set up so that people with lower incomes pay a higher percentage of their earnings in taxes. Sales taxes in the United States are an example of a regressive tax, as poorer individuals are forced to pay a higher percentage of their income in taxes for clothing, transportation, and other everyday essentials.