3.2.4.1 Progressive and Regressive Taxation
(The latest version of this page is at Pattern Descriptions. An archived copy of this page is held at https://www.patternsofpower.org/edition02/3241.htm)
Some taxes are designed to be levied at a higher percentage upon those who have greater wealth in that category: they are progressive. Income taxes, for example, tend to be progressive: they typically take the form of allowing all income below a certain threshold to be free of tax and then taxing the remainder. Most governments have implemented a more than minimally progressive system of income tax: applying a higher tax rate as incomes exceed a further threshold, on the principle that the rich can afford to pay even more as in the example illustrated below, which rises from 0% to 20% to 40%.
Some other taxes affect the wealthy more than the poor, such as taxes on land[1],
property, inheritance and capital gains; and Thomas Piketty has suggested that
a progressive global tax on capital could be levied.[2]
By contrast, purchase taxes (including value-added tax) tend to be regressive on many commodities because poorer people spend a higher proportion of their incomes on basic requirements.
Purchase taxes can, though, be precisely targeted: for example it may be deemed politically more acceptable to levy higher rates of tax on luxuries or on products which can be harmful to health.
Tax is neither progressive nor regressive in a flat tax system, but is directly proportional to wealth. Its proponents argue that it stimulates growth by avoiding penalising high earners; it can also avoid the distortions of special allowances and is cheaper to collect.[3]
Š PatternsofPower.org, 2014