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Regressive, Proportional, And Progressive Taxes: What’s The Difference?

We all hate taxes but must acknowledge that they are necessary for our society. They help fund essential government programs and services that the citizens cannot do without.

There are three main types of taxes: regressive, proportional, and progressive. This blog post will discuss the differences between these three types of taxes. Keep reading to learn more!

Regressive Taxes

Regressive taxes take a more significant percentage of income from lower-income earners than higher-income earners. Because lower-income individuals have less money to begin with, these taxes can put them at a considerable disadvantage.

In addition, regressive taxes can exacerbate income inequality and lead to more social problems. For example, suppose the wealthy can keep more of their income. In that case, they will be better able to afford education, health care, and other areas that provide opportunity and improve their quality of life. On the other hand, lower-income individuals may be unable to afford these amenities, leading to further disparities.

Ultimately, regressive taxes can hurt society. That’s why it’s essential to be aware of them and advocate for more progressive tax policies.

Progressive Taxes

Progressive taxes take a greater percentage of income from high-earners than from low-earners. The purpose of progressive taxes is to reduce the gap between rich and poor by redistributing wealth from the rich to the poor.

Progressive taxes are popular because they are seen as fair: why should someone who earns $1 million per year pay the same tax rate as someone who earns $50,000 per year?

However, progressive taxes can also be unpopular because they can discourage work and investment by taxing away the rewards of success. Nevertheless, progressive taxes are an essential tool for reducing inequality and ensuring that everyone pays their fair share.

Examples of progressive taxes include estate taxes, gift taxes, and marginal income taxes.

  • Estate and gift taxes are impositions on property transfer at death or as a gift.
  • Marginal income taxes are based on marginal utility, which says that people will make choices based on the additional utility they expect to receive from an action.

Proportional Taxes

Proportional taxes have a fixed rate, and the tax base is variable. The tax base is the amount of money on which the tax is levied. This type of tax is also called a head tax or per capita tax.

The main advantage of this type of tax is that it is straightforward to administer. There are no complex rules to calculate the amount owed. All that is needed is a list of all the people liable for the tax and their respective tax rates.

Another advantage of this type of tax is that it is easy to understand. Everyone knows how much they have to pay in taxes, and there are no surprises.

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