What are Progressive Taxes?

Published by Thomas Herold in Economics, Laws & Regulations

The term 'Progressive Taxes' is included in the Economics edition of the Herold Financial Dictionary. Get yourself a copy now on Amazon - available as Kindle or Paperback.

Progressive taxes exact a larger pound of flesh from the income of higher income earners than they do from lower income contemporaries. The idea is a tax system which is based upon the ability of an income earner to pay. In other words, the system demands a bigger percentage and absolute amount in taxes from the larger earners than from the lower income workers.

The American income tax system has long been considered to be progressive in practice. For the taxing year 2016, those persons who possess under $9,275 in income pay only 10 percent in income tax. The taxpayers who bring in over the benchmark highest income level of $415,050 are grouped in the maximum tax system bracket. These people will pay rates as high as 39.6 percent of their income to the tax man.

These progressive taxes gouge the higher income groups for a substantially higher tax rate percentage and absolute amount than they do the lower income earners. It is based more on the ability of the earner to pay than a simple flat percentage tax would be. Progressive tax systems could hit the lower earners at 10 percent, while assessing middle income earners at 15 percent and higher income workers for over 30 percent. This is the basis of the United States taxing model and system.

A tax structure’s actual progressivity is dependent on how fast the rate rises in correlation with the income increases of the earner in question. A tax code with a lowest rate of 10 percent and a highest bracket of 30 percent would be less progressive than one that offers rates of income taxes which vary from a low of 10 percent to a high of 80 percent. These kinds of radically progressive tax systems are most famous in the countries of Scandinavia and Northern Europe.

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There are some obvious advantages to progressive taxes. They lower the relevant tax burden on those working poor and the families which can not afford to pay them at all. This is why such taxing systems leave as much money in the lower wage earners’ accounts as possible. These people will in fact spend all they make from their paychecks and stimulate the economic activity of the country.

Such progressive taxes also possess the unique ability to bring in a greater amount of tax income to the governments than do the regressive or flat income tax plans. This is because the tax rates climb as does the relevant earned income. With a progressive tax system, those wage earners who have the highest possible resources to contribute will fund a larger share of the public services and goods which all citizens equally enjoy and utilize. This includes snow and debris removal, national park usage, first responder activity, and roads and other forms of national infrastructure.

There are also some disadvantages to progressive taxes as well. The critics of this form of taxing system say that they unfairly discriminate against earners based on how much they earn or if they are wealthy through business, investments, or inheritance. Such critics feel that the U.S. progressive system of income taxes is actually a sneaky and covert way of redistributing income. This is based on the incorrect notion that the majority of taxes go to pay for social welfare programs in America. In truth, only a tiny proportion of actual government spending is directed at welfare programs and their income redistributing payments.

The term 'Progressive Taxes' is included in the Economics edition of the Herold Financial Dictionary. Available now on Amazon in Kindle and Paperback.