Tax for some people has never been easy to understand, as there are so many things that come into play depending on the person’s employment situation. One of the many tax points that people seem to misunderstand is the difference between regressive and progressive taxes. They are both terms used to determine an individual or entity’s tax rates and brackets, depending on their income or expenditure. If you are interested in getting to know a little more about progressive vs. regressive taxation, what both regressive and progressive taxes mean, and what they do below.
Regressive taxes are harder to understand than the other tax terms, because if an individual or entity is on a low income, they will need to pay more income in taxes when compared with wealthier entities or individuals. It’s a tax system that is implemented into the sales of real estate, alcohol, cigarettes, and fuel, so it is a tax system that is often used for businesses rather than individuals. Of course, many smaller businesses aren’t happy with this tax system because it means they pay more tax on their income than larger businesses.
Progressive Tax is the one wealthy people aren’t fond of, because it’s the taxing structure that will increase the percentage of tax paid the more the person earns. So if a person earns $10,000 a year, they will only need to pay $1,000 tax, plus 15% of any income after that. Whereas a person who earns $418,400 a year, will need to pay $121,505,25 in taxes and an additional 39.6% tax if they earn more than that. Wealthy people obviously do not agree with this tax bracket, as the more they earn will mean they have to pay even more tax. It definitely benefits low-income earners though, because they will only have to pay a small fraction of their wages when compared with wealthier individuals.
As well as regressive and progressive taxes, there is also a tax system called proportional taxes that many people seem to forget. This system doesn’t take into account the income earned by an individual, and it will only take a set percentage of tax from an individual’s pay packet. This system varies when it comes into play, but an example would be if an individual earns $15,000 in one year, they will need to pay $1,500. If someone earns $150,000 in one year, they will only have to pay $15,000 in taxes – so it’s a completely level playing field that creates equality among employees, but it’s not one that happens very often, which is why individuals often forget about it.
You don’t need an online degree in taxation to understand tax, but sometimes it is helpful to get assistance from professionals like the ones from Dave Burton. The above three tax systems aren’t there to be unfair; they are just there to try and create a secure economy for years to come. It’s not always fair that wealthy people have to pay much more tax than low-income earners, but it’s the only way of doing it so that public services are paid for.