Public finance
This article is part of the series: Finance and Taxation
Taxation
Income tax  ·  Payroll tax CGT ·  Stamp duty  ·  LVT Sales tax  ·  VAT  ·  Flat tax Tax, tariff and trade Tax haven
Tax incidence
Tax rate  ·   Proportional tax Progressive tax  ·   Regressive tax Tax advantage
Taxation by country Australia • British Virgin Islands Canada • China • Colombia France • Germany • Hong Kong India • Indonesia • Ireland Netherlands • New Zealand Peru • Russia • Singapore Tanzania • United Kingdom United States • European Union  v • d • e  Tax rates around the world Tax revenue as % of GDP
Economic policy
Monetary policy Central bank  ·   Money supply Gold standard
Fiscal policy Spending  ·   Deficit  ·   Debt
Policy-mix
Trade policy Tariff  ·   Trade agreement
Finance
Financial market Financial market participants Corporate  ·   Personal Public  ·   Regulation
Banking
Fractional-reserve Full-reserve  ·   Free banking Islamic
view • talk • edit • project

A progressive tax is a tax that imposes a greater percentual burden on the rich than on the poor. Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased Stamp duty is a form of Tax that is levied on documents Historically a physical stamp (a Tax stamp) had to be attached to or impressed upon the document to denote Land value taxation (LVT (or site value taxation) is an Ad valorem tax where only the value of land itself is taxed A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. A flat tax (short for flat rate tax is a Tax system with a constant tax rate The tax tariff and trade laws of a political region State or Trade bloc determine which forms of consumption and production tend to be encouraged A tax haven is a place where certain Taxes are levied at a low rate or not at all In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare. In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases Tax advantage refers to the economic bonus which applies to certain accounts or Investments that are by Statute, tax-reduced tax-deferred or tax-free Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of Taxation in the British Virgin Islands is relatively simple by comparative standards photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development (OECD countries Taxes provide the most important revenue source for the Government of the People's Republic of China. See Government of Colombia for a wider perspective of Colombian government See Government of France for a wider perspective of French government Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the HK Inland Revenue Ordinance Cap112 is one of Hong Kong's Ordinances Taxes in India are levied by the Central Government and the State Governments This article ls with Taxation in Indonesia or pajak. Definitions "Pajak" in Indonesian for Tax and taxes whereas " Perpajakan The system of Taxation in Ireland is broadly similar to the system of Taxation in the United Kingdom. The Netherlands has a rich history dealing with taxation predating the Romanic period. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand. The Income tax in Peru is collected by the Superintendencia Nacional de Administración Tributaria, best known as SUNAT. The Russian Tax Code is the primary tax law for the Russian Federation. Individual income tax in Singapore forms part of two main sources of Income tax, the other being Corporate taxes on companies In Tanzania the Income Tax Act 2004 came into effect in July 2004 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise This table lists countries by total 2005 Tax revenues (federal state and local as a percentage of GDP (Gross Domestic Product Economic policy refers to the actions that Governments take in the economic field. Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set fixed quantities of Gold Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Government spending or government expenditure is classified by economists into three main types A budget deficit occurs when an Entity (often a Government) spends more Money than it takes in Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government Trade is the willing exchange of goods, services, or both Trade is also called Commerce. For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary A trade pact is a wide ranging Tax tariff and trade pact that often includes Investment guarantees The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve Full-reserve banking is the Banking practice in which the full amount of each depositor's funds are available in reserve at the bank when each depositor Free banking is a theory of Banking in which commercial banks and market forces control the provision of banking services Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law ( Sharia) principles and guided by Islamic economics The opposite is a regressive tax. A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases ^[1][2] which imposes a greater percentual burden on the poor than on the rich. Due to the very high level meaning of the term, there can be significant.

Progressive tax does not necessarily refer to something that grows as the numbers involved grow as is the case with progressive income tax. A hypothetical tax on luxury goods can have a flat rate (meaning that the tax is same for a necklace worth 10. In Economics, a luxury good is a good for which Demand increases more than proportionally as income rises in contrast to a "necessity good" 000 as it is for a necklace worth 1. 000. 000) and the tax remains a progressive tax. Yet the most commonly referenced form of progressive taxation is the personal income tax, where people with more disposable income pay a higher percentage of that income in tax than do those with less income. Disposable income is Gross income minus Income tax on that income

In between progressive and regressive taxation is a proportional taxation (flat tax is close to this), where the tax rate is fixed. A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases A flat tax (short for flat rate tax is a Tax system with a constant tax rate The proportional taxes are only used for incomes, as taxes on consumption could only be made proportional if the buyer's income would be included in the taxes applied. Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence disproportionately to those with a higher ability-to-pay. In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare.

The whole topic of progressive taxation can be split in to two distinct categories:

• Progressive Income Taxation (income tax, capital gains tax, inheritance tax, payroll tax etc)
• Progressive Consumption Taxation (VAT, gas tax and others, all which are essentially sales taxs)

There are also some mixups with progressivism the ideology, under which high gas taxes might be called progressive (since they are pro-nature, which would be considered progressive). A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased Estate tax and Death duty redirect here Inheritance tax, estate tax and death duty are the names given to various taxes which Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. A fuel tax (also known as a petrol tax, gasoline tax, gas tax or fuel duty) is a Sales tax imposed on the sale of Fuel. A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services Progressivism is a term that refers to a broad school of international social and political philosophies. However, gas taxes are actually extremely regressive in developed countries. It is interesting to note that the development status of a country affects whether a given consumption tax is regressive or progressive: in a country where the majority of the population goes to work in a car (for example the USA) gas tax is regressive, whereas it would be progressive in a country where only the rich have cars. The United States of America —commonly referred to as the

History of intellectual debate about progressive taxation

The debate regarding progressive taxation has been somewhat confused as the consumption and income sides of the equation tend to be mixed especially in populist public discourse. As economists understand the combination:

Considering there is no option that would be "proportional", the obvious choices come down to whether people would prefer progressive or regressive. There are few reasons except cronyism to actually favor regressive taxation, which has historically been the best way to create an uprising (in particular the extremely regressive food and alcohol taxes have caused numerous uprisings). This leaves most economists and political scientists supporting either the progressive or extremely progressive stances in the previous table. And indeed the idea of a progressive taxation has garnered support from economists and political scientists of many different ideologies - ranging from Adam Smith to Karl Marx, although there are differences of opinion about the optimal level of progressivity. An ideology is a set of beliefs aims and Ideas especially in politics Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. Some economists^[3] trace the origin of modern progressive taxation to Adam Smith, who wrote in The Wealth of Nations:

The necessaries of life occasion the great expense of the poor. An Inquiry into the Nature and Causes of the Wealth of Nations is the Magnum opus of the Scottish economist Adam Smith. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion. ^[4]

In most western European countries and the United States, advocates of progressive taxation tend to be found among the majority of economists and social scientists who realize that completely proportional taxation is not even a possibility. ^[5][6][7] In the U. S. , the vast majority of economists (81%) support progressive taxation. ^[5][6][7]

Progressive Income Taxation

The key concept of progressive income taxation is that income is considered in different steps, where income earned between certain points will be taxed at a certain rate. This is done to avoid creating incentive traps, where earning more might actually decrease your income (if income up to 10. 000 is untaxed and after 10. 001 you pay 10%, you will receive 9. 000,9 if you make 10. 001 and 10. 000 if you make 10. 000).

The size and severity of the different steps varies a great deal and the differences inside the term "progressive" can be enormous. In this sense it is not surprising that most economists support progressive taxation to some degree - the primary differences come when looking at the maximum income taxes that the highest earners might have to pay.

Reasons for implementation

• If the utility gained from income exhibits diminishing marginal returns, as many psychologists assert (see Weber-Fechner law), then for the tax burden to be shared in a utilitarian way the tax-bill must increase non-linearly with income. In Economics, utility is a measure of the relative satisfaction from or desirability of Consumption of various Goods and services. In Economics, diminishing returns is also called diminishing marginal returns or the law of diminishing returns. The Weber–Fechner law attempts to describe the relationship between the physical magnitudes of stimuli and the perceived intensity of the stimuli Utilitarianism is the idea that the moral worth of an action is solely determined by its contribution to overall Utility, that is its contribution to happiness This article describes the use of the term nonlinearity in mathematics

• As income levels rise, levels of consumption tend to fall. Thus it is often argued that economic demand can be stimulated by reducing the tax burden on lower incomes while raising the burden on higher incomes.

• It is also argued that people with higher income tend to have a higher percentage of that in disposable income, and can thus afford a greater tax burden (this is the “vertical equity” argument). Equity is the concept or idea of fairness in Economics, particularly as to Taxation or welfare economics Some would claim that a person earning exactly enough money to pay for food and housing cannot afford to pay any taxes without it causing material damage, while someone earning twice as much can afford to pay up to half their income in taxes.

• Some believe that the wealthy have a disproportionately greater interest in maintaining societal goods typically supported by taxation such as security of property rights, defense and infrastructure, as they have much more to lose if these fail than do the poor. Infrastructure typically refers to the technical structures that support a society such as Roads Water supply, Wastewater, Power grids Public investments in defense and foreign aid often support assets abroad whose expropriation is a far greater risk than is the risk involving domestic investments. Expropriation refers to Confiscation of Private property with the stated purpose of establishing social equality.

• Some supporters of progressive taxation favor increasing taxes on middle class tax-payers, who have inelastic household budgets. The middle class, in colloquial usage consists of those who have some economic independence but not a great deal of social Influence or power. In economics the income elasticity of demand measures the responsiveness of the quantity demanded of a good to the change in the income of the people demanding the

• A progressive tax is an automatic stabilizer in the sense that if a person were to suffer a decrease in wages due to a recession then the money regained by being in a lower tax bracket lessens this blow. In Macroeconomics automatic stabilisers work as a tool to dampen fluctuations in Real GDP without any explicit policy action by the government

• It is inherent in tax policy that it implements economic and social policy. People who are concerned about a runaway, cancerous character in the global economy, greenhouse gases, etc. , see benefits in progressive taxation, both in its braking effect on the economy and in helping shape economic activities towards necessities more effectively than purely monetary or fiscal policies.

• As long as after-tax income is a strictly increasing function of gross income, there is a monetary incentive to increase compensation received. Indeed, for any particular income goal, the higher the tax rate, more compensation one must receive to reach that income goal. For this reason, progressive income tax may increase the incentive to produce among the largest producers (if higher production is truly associated with higher compensation).

Arguments against implementation

Arguments against progressive taxation tend to be found among libertarians and some conservatives. Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the Conservatism is a term used to describe political philosophies that favour Tradition, where tradition refers to various religious cultural or nationally defined Among economists and social scientists, and to a lesser extent the general population, opponents of progressive taxation tend to be in the minority. ^[8][9][10]

• Progressive taxes lower savings rates. High-earners have a lower average propensity to consume, so shifting the tax-burden away from them will increase the aggregate savings rate, which should increase steady state growth (if the savings rate is initially below the Golden Rule savings rate). Average propensity to consume (APC is the percentage of income spent In common usage saving generally means putting money aside for example by putting money in the bank or investing in a Pension plan Steady state is a more general situation than Dynamic equilibrium. In Economics, the Golden Rule savings rate is the rate of Savings which maximizes steady state growth consumption in the Solow growth model.
  • The classical argument against progressive taxation runs as follows:

    The diminishing returns argument applies to the fraction of income used for present consumption. As income rises, diminishing returns implies that a smaller and smaller fraction of income will be spent on consumption goods. The remaining income will (of necessity) be used to purchase capital goods. This acts as a form of positive feedback that in turn yields more income for capital spending. Meanwhile (and because) these capital goods induce a decline in the costs of production which has the effect of raising real wages generally and implicitly raising the general standard of living. The income paid back on the capital helps create the disincentive to consume that creates capital spending. Thus, those capitalists who effectively manage their property are rewarded and given control of more (newly created) property, of which they are increasingly less inclined to consume and increasingly more inclined to purchase capital goods and thus further elevate the general standard of living by driving down the costs of production. As they acquire more capital goods, eventually their ownership outstrips their ability to manage and oversee what they own; however, they only control as many capital goods as can be attributed to the income of their prior capital---which previously did not exist. Therefore, their ownership does not negatively contribute to the general standard-of-living relative to counterfactual state of them not purchasing those goods. It would thus be misleading to argue that redistributing their capital may yield further increases in the standard-of-living. Doing so may well cause that effect, but doing so neglects that it was the assumption that redistribution would not happen that induced the accumulation of capital. — Eugen von Böhm-Bawerk, Karl Marx and the Close of his System, 1896)

  • A belief that progressive taxation shifts the total economic production of society away from capital investments (tools, infrastructure, training, research) and toward present consumption goods. Eugen Ritter von Böhm-Bawerk ( February 12, 1851 in Brno &ndash August 27, 1914 in Vienna) was an Austrian In Marxian economics, capital goods originally referred to the Means of production. This could happen because high-income earners tend to pay for capital goods (through investment activities) and low-income earners tend to purchase consumables. Smithian and neo-classical growth theory says that spending more on consumption goods and less on capital goods will slow the rise of the standard of living, and possibly even reduce it since capital goods increase future production possibilities. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. The Exogenous growth model, also known as the Neo-classical growth model or Solow growth model is a term used to sum up the contributions of various authors to a The standard of living refers to the quality and quantity of goods and services available to people and the way these goods and services are distributed within a population In Economics, a production-possibility frontier (PPF or “transformation curve” is a graph that shows the different rates of production of two goods
• Brain drain and tax avoidance. High progressive taxes may encourage emigration because taxes are not internationally harmonized, so very high earners are sometimes able to relocate in order to pay less tax, or find tax havens for their income. "Emigrant" redirects here For the Butterflies, see Catopsilia. Tax competition exists when governments are encouraged to lower fiscal burdens to either encourage the inflow of productive resources or discourage the exodus of those resources A tax haven is a place where certain Taxes are levied at a low rate or not at all Unlike the opposing income effect and substitution effect of leisure which may make tax progressivity neutral in terms of working hours, the emigration rate can only increase with the top rates of tax. Consumer theory is a theory of Microeconomics that relates Preferences to consumer demand curves. Consumer theory is a theory of Microeconomics that relates Preferences to consumer demand curves.
  • The differential in the higher rates of tax between the United States and Europe are cited as a factor in the "brain drain" of high-earners to America in the 1960s, and is considered an important influence on modern "economic migration. The United States of America —commonly referred to as the A brain drain or human capital flight is a large emigration of individuals with technical skills or knowledge, normally due to conflict, lack of opportunity "
• Increase in tax loopholes such as income splitting techniques. Income splitting is a method of reducing a family's Income tax in a jurisdiction that employs Progressive taxation. This creates an incentive for business owners to split their business into smaller, less efficient ones for a lower tax bracket. It also encourages production from less efficient smaller businesses than larger ones.
• The increasing energy expended on tax avoidances which occur with greater progressivity produces an increase in the work of accountants and lawyers. Tax avoidance is the legal utilization of the Tax regime to one's own advantage in order to reduce the amount of tax that is payable by means that are within the law An accountant is a practitioner of Accountancy, which is the measurement disclosure or provision of assurance about financial information that helps managers investors A lawyer, according to Black's Law Dictionary, is "a person learned in the law as an attorney, Counsel or Solicitor; a person Because tax avoidance creates no net wealth this work is unproductive, and can make taxes on the rich less efficient than on the middle class, who have less motivation to exploit tax loopholes.
• Progressive taxes are argued to create work disincentive. Consider again someone who makes twice the minimum required to live on, but pays all income above the minimum living threshold in taxes. Such a person had no monetary incentive at all to try to increase his or her income above the base level. ^[11]
• Justice in representation. Economic equity is sometimes used to argue against progressive taxation, on the grounds of representation being out-of-proportion to taxation: While the top 5% in income in most countries pay over half the taxes^[12] they only have 5% of the voting weight. Equity is the concept or idea of fairness in Economics, particularly as to Taxation or welfare economics This argument can be reversed into the plutocratic case that if tax is to be progressive it should be accompanied by greater say in elections for those who contribute most. Plutocracy is rule by the wealthy or power provided by wealth
• Policymakers are argued to be under a pressure from lower and middle income voters to limit higher incomes by the means of progressive taxation. A few economists argue against inequity aversion: "If policy makers' primary goal is … economic prosperity for all, they should avoid focusing on the politics of envy. Inequity aversion (IA is the preference for fairness and resistance to inequitable outcomes Class conflict, also class war or class warfare, is both the friction that accompanies social relationships between members or groups of different " (Gregory Mankiw)^[13]

• A study from the libertarian Institute for Policy Innovation, which aims to reduce government intervention in the economy, has concluded that progressive taxes fail to decrease real income inequality. Nicholas Gregory "Greg" Mankiw (mæŋˈkjuː (born February 3, 1958) is an American macroeconomist. Libertarianism is a term used by a broad spectrum of political philosophies which prioritize individual Liberty and seek to minimize or even abolish the Real income is the Income of individuals or nations after adjusting for Inflation. Economic inequality refers to disparities in the distribution of Economic Assets and Income. ^[14]

Marginal and effective tax rates

Main articles: Marginal tax rate and Effective tax rate

The rate of tax can be expressed in two different ways, the marginal rate expressed as the rate on each additional piece of income (or last dollar spent) and the effective (average) rate expressed as the total tax paid divided by total income. In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is In most progressive tax systems, both rates will rise as income rises, though there may be income ranges where the marginal rate will be constant. With a system of negative income tax, refundable tax credits, or income-tested welfare benefits, it is possible for marginal rates to fall as income rises: this can still be seen as progressive providing that the marginal rate is higher than the average rate at any particular level of income, since the average rate will rise as income rises; high marginal rates for those on low incomes can lead to a poverty trap within a progressive system, even if they face negative average rates. In Economics, a negative income tax (abbreviated NIT) is a Progressive income tax system where people earning below a certain amount receive supplemental The term tax credit describes two different concepts The first is a recognition of partial payment already made towards Taxes due. Welfare is financial assistance paid to people by governments The welfare trap theory asserts that Taxation and welfare systems can jointly contribute to keep people on social insurance

Measuring Progressivity

The progressivity of a tax can be expressed by its Suits index or the Gini Coefficient. The Suits index of a public policy is a measure of collective progressivity named for Economist Daniel B The Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution or inequality of wealth

Personal income tax brackets

United States

See also: Income tax in the United States and Taxation in the United States

The progressive aspects of the Federal income tax rates in the United States have varied widely since 1913. The Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation For example, in 1954 the Congress imposed a Federal income tax on individuals, with the tax imposed in layers of 24 income brackets at tax rates ranging from 20% to 91% (for a chart, see Internal Revenue Code of 1954). The Tax Reform Act of 1986 redesignated the Internal Revenue Code of 1954 as the Internal Revenue Code of 1986 and made numerous other amendments As of 2006, there are six "tax brackets" ranging from 10% to 35% used to calculate the percentage of taxable income (of individuals) that must be paid to the United States Treasury. Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. The United States Department of the Treasury is a Cabinet department and the Treasury of the United States government. If taxable income falls within a particular tax bracket, the individual pays the listed percentage of income on each dollar that falls within that monetary range. For example, a person who earned $10,000 in taxable income (income after adjustments, deductions, and exemptions) for 2006 would be liable for 10% of each dollar earned from the 1st dollar to the 7,550th dollar, and then for 15% of each dollar earned from the 7,551st dollar to the 10,000th dollar, for a total of $1,122. Taxable income is the portion of Income that is the subject of taxation according to the laws that determine what is income and the taxation rate for that income 50. This ensures that every rise in a person's salary results in an increase of after-tax salary. The Treasury Department in 2006 reported, based on Internal Revenue Service (IRS) data, the share of all federal taxes paid by taxpayers of various income levels. The The data shows the progressive structure of the U. S. federal tax system that reduces the tax incidence of people with smaller incomes, as they shift the incidence disproportionately to those with higher incomes - the top 0. In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare. 1% of taxpayers by income pay 17. 4% of all federal taxes (earning 9. 1% of the income), the top 1% pay 36. 9% (earning 19%), the top 5% pay 57. 1% (earning 33. 4%), and the bottom 50% pay 3. 3% (earning 13. 4%). ^[15]

However, if the federal taxation rate is compared with the wealth distribution rate, which was studied in A Rolling Tide: Changes in the Distribution of Wealth in the U. Distribution of wealth is a comparison of the Wealth of various members or groups in a Society, and is one aspect of the Economy and Social structure S. by Arthur Kennickell at Levy Economics Institute, the net wealth (not only income but also including real estate, cars, house, stocks, etc) distribution of the United States does almost coincide with the share of income tax - the top 1% pay 36. The Levy Economics Institute of Bard College is located on the campus of Bard College in Annanadale-on-Hudson NY 9% of federal tax (wealth 32. 7%), the top 5% pay 57. 1% (wealth 57. 2%), top 10% pay 68% (wealth 69. 8%), and the bottom 50% pay 3. 3% (wealth 2. 8%). ^[16] Other taxes in the United States with a less progressive structure or a regressive structure, and legal tax avoidance loopholes change the overall tax burden distribution. Tax avoidance is the legal utilization of the Tax regime to one's own advantage in order to reduce the amount of tax that is payable by means that are within the law For example, the payroll tax system is regressive on income with no standard deduction or personal exemptions taxing only the first $97,500 for 2007 from gross wages, and none earned from capital investments or interest. Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding The Center on Budget and Policy Priorities states that three-fourths of U. The Center on Budget and Policy Priorities (CBPP is a Non-profit Think tank which describes itself as a "policy organization. S. taxpayers pay more in payroll taxes than they do in income taxes. ^[17]

United Kingdom

For more details on this topic, see Taxation in the United Kingdom. Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs)

The United Kingdom has the following progressive income tax brackets (all values in Pound sterling): 20% from £2231 to £34,600 and 40% for £34,600 and above. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The Pound Sterling ( symbol £; ISO code: GBP) subdivided into 100 pence (singular penny) is the Currency These taxation rates are only applicable, of course, for taxable income. For those aged 18-65 and not in full time education, the income tax allowance (the amount of income against which no income tax will be levied) is £5225.

New Zealand

For more details on this topic, see Taxation in New Zealand. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand.

New Zealand has the following progressive income tax brackets (all values in New Zealand dollars with earner levy included): 19. New Zealand is an Island country in the south-western Pacific Ocean comprising two main landmasses (the North Island and the South Island The New Zealand dollar ( sign: $; code: NZD) is the Currency of New Zealand. 5% up to $38,000, 33% from $38,001 to $60,000, 39% above $60,001, and 49% when the employee does not complete a declaration form (IR330). ^[18] In New Zealand, the income is taxed by the amount that falls within each tax bracket. In other words, if a person earns $60,000, they will only pay 33% on the amount that falls between $38,001 and $60,000 rather than paying this on the full $60,000.

Australia

For more details on this topic, see Taxation in Australia. Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of

Australia has the following progressive income tax brackets (all values are in Australian dollars): 0% up to $6000, 15% from $6001 to $25000, 30% from $25001 to $75000, 40% from $75001 to $150000, and 45% tax for any amount over $150000. For a topic outline on this subject see List of basic Australia topics. The Australian dollar ( sign: $; code: AUD) is the Currency of the Commonwealth of Australia, including Christmas These taxes are paid throughout Australia.

Inflation and tax brackets

Many tax laws are not accurately indexed to inflation. Either they ignore inflation completely, or they are indexed to the Consumer Price Index (CPI), which tends to understate real inflation. CPI redirects here For other uses see CPI (disambiguation. A consumer price index ( CPI) is a measure of the average price of consumer ^[19] In a progressive tax system, failure to index the brackets to inflation will eventually result in effective tax increases (if inflation is sustained), as inflation in wages will increase individual income and move individuals into higher tax brackets with higher percentage rate. One example is the United States Alternative Minimum Tax; since it is not indexed to inflation,^[20][21] an increasing number of upper-middle-income taxpayers have been finding themselves subject to this tax. Alternative Minimum Tax ( AMT) is part of the Federal Income tax system of the United States.

See also

• Tax incidence
• Laffer curve
• Proportional tax
• Regressive tax
• Robin Hood effect
• Suits index

Notes

External links

• Revised 2003 Tax Rate Schedules
• Income Tax Rates for Individuals - New Zealand
• The Progressive Income Tax: Theoretical Foundations
• What's Wrong with the Progressive Income Tax
• Punitive – And It Works - A Guardian article by George Monbiot, on the Swedish tax system. The Guardian (until 1959 The Manchester Guardian) is a British Newspaper owned by the Guardian Media Group. George Joshua Richard Monbiot (born 27 January, 1963) is a left-wing Journalist, Author, Academic and environmental It focuses on its positive effect to the country's economic competitiveness, while at the same time reducing inequality.