4946 taxes: progressive, proportional, and regressive


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taxes: progressive,
proportional, and

Christine A. Wernet

The generation of government revenue and the
redistribution of income among the population
are two central reasons for taxation (Davies
1986). Governments have used taxation as a
means to generate revenue for centuries, and
some governments have been using taxation as
a means of resource reallocation since at least the
1800s. The three main types of taxation, pro
gressive, proportional and regressive taxes, are
Progressive taxes are taxes that require those
who earn more money to pay higher taxes.
Personal income taxes in the US are progres
sive. For example, those who have a family
income of $100,000 or higher may pay as much
as 29 percent of their total income in annual
taxes, while those in the lowest income bracket,
who may have a family income of $10,000, pay
approximately 4.6 percent of their total income
in annual taxes (Mishel et al. 1999). Proponents
of progressive taxes argue that wealthy indivi
duals have a moral obligation to society to pay
higher taxes. Opponents argue that progressive
income taxation has a negative effect on capital
formation and economic growth.
Proportional taxes refer to taxes that equally
burden all income groups in a society. Propor
tional taxes are sometimes referred to as a flat
tax. For example, if a society had a proportional
income tax of 15 percent, a family with an
annual income of $100,000 would pay $15,000
a year in income taxes, while a family with an
annual income of $10,000 would pay $1,500 a
year in income taxes.
Regressive taxes burden lower income groups
more than higher income groups. Less affluent
individuals spend a higher proportion of their
income on regressive taxes, such as sales taxes
and excise taxes, than do more affluent indivi
duals. For example, $400 of sales tax is a much
larger proportion of $10,000 than it is of
$100,000. Sales tax is tax that is placed on all
items that are sold: food, clothing, furniture,
etc. Some states place a sales tax of, for example,
7 percent on all items sold. In this case, if an
item is purchased for $100 the individual will
owe $7 in sales tax to the government. Another
regressive tax is the excise tax. Excise taxes are
placed on certain items such as alcohol, tobacco,
and gasoline. Excise taxes place a heavier bur
den on the poor than on the rich because excise
taxes, like sales taxes, account for a larger pro
portion of their total income.
When all forms of taxation are considered,
some countries, such as the US, actually have
more income inequality after taxation than
before (Devine 1983; Kerbo 2003). Therefore,
while taxation does much to generate revenue
for the government, it may do little to redistri
bute resources.

SEE ALSO: Class, Status, and Power; Eco
nomic Development; Income Inequality and
Income Mobility


Davies, D. (1986) United States Taxes and Tax Pol
icy. Cambridge University Press, New York.