![]() Progressive Tax Examples Capital Gains Tax However, it creates a much more complex system to administer. In turn, progressive taxes need to have a number of small, incremental brackets to be most effective. So if the tax rate jumps from 20 percent to 60 percent, then people will be disincentivized to move into the higher tax bracket. The more progressive the tax, the more pronounced the effects will be – particularly if there are fewer brackets. However, a more progressive tax would be if there was a 0 percent tax on incomes up to $20,000 and an 80 percent tax on incomes over $250,000. For instance, a tax of 10 percent on incomes up to $20,000 and another 20 percent on incomes over $250,000 is a progressive tax. The larger the increase in tax rate between poor and rich, the more progressive the tax is. By increasing the tax burden on the rich, who can afford to pay more, it, therefore, reduces the tax burden on the poor. The progressive tax is seen as fair by many as it re-distributes income away from rich households and reduces the burden on the poor.Ī progressive tax is seen as the epitome of equality.An example of the progressive tax includes the estate tax whereby a tax is levied on estates with a value of over $5.3 million. ![]() A progressive tax is one which increases as incomes increase.
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