progressive taxation


Also found in: Dictionary, Thesaurus, Legal.
Related to progressive taxation: liberalism, Progressive tax system

Progressive taxation

Characterizes a convex tax schedule that results in a higher effective tax rate on higher income levels. Increases for some increases in income, but never decreases with an increase in income.

Progressive Tax System

A system of taxation in which persons or corporations are assessed at a greater percentage of their income according to the theoretical ability to pay. That is, taxpayers pay more in taxes if they earn more in income. For example, taxpayers may pay 25% of their income in taxes up to a certain amount, and 35% of everything earned over that amount.

A theory behind progressive taxation states that persons or corporations who earn the same or a similar amount of money should be taxed in the same or a similar way. For example, the theory states that two individuals making $50,000 per year should be taxed the same amount, regardless of how they earned their income. This is known as horizontal equity. While most countries have some form of progressive taxation, it is usually coupled with other taxes, such as a sales tax, and few countries treat all income as exactly the same. See also: Regressive tax system.

progressive taxation

a structure of TAXATION in which tax is levied at an increasing rate as TAXATION rises. This form of taxation takes a greater proportion of tax from the high-income taxpayer than from the low-income taxpayer. The marginal incidence of taxation rises to some predetermined upper limit, currently 40% in the UK on earned income. For example, a man earning £20,000 with current tax bands as shown in column 1 and the rate of taxation in column 2 would have the tax payable shown in column 3:
column 1 column 2 column 3
tax tax tax
bands rates payable
(£) (%) (£)
0- 5,000 exempt nil
5,001–10,000 20 1,000
10,001–15,000 30 1,500
15,001–20,000 40 2,000
-----
total
4,500
-----

The increasing rate of taxation is shown in column 2. The greater the individual's earnings, the greater the rate of tax that is levied.

Virtually all western economies exhibit some form of progressive taxation structure as a means of redistributing income from the more affluent members of society to the poorer (see POVERTY). This type of ABILITY-TO-PAY PRINCIPLE is regarded, as far as earned personal incomes are concerned, as the most equitable form of taxation. Ideally, however, a progressive income tax structure should not only promote social equity by redistributing income, but should also encourage enterprise by avoiding penal rates of taxation at the upper end of the income scale and, together with SOCIAL SECURITY BENEFITS, provide suitable incentives to work at the lower end of the income scale. Compare REGRESSIVE TAXATION, PROPORTIONAL TAXATION. See also INCIDENCE OF TAXATION, REDISTRIBUTION-OF-INCOME PRINCIPLE OF TAXATION, SUPPLY-SIDE ECONOMICS, LAFFER CURVE, MARGINAL RATE OF TAXATION.

References in periodicals archive ?
The late 20th-century decline in progressive taxation wasn't peculiar to the United States.
Nowadays, Croatia still features a progressive taxation of earned income, with two tax brackets: up to HRK 17.500 - 24% and over HRK 17.500 - 36%.
In such a case, one purpose of progressive taxation is to cause the poor to acquiesce to governmental expenditures for public goods under the belief that the wealthy (i.e., the property classes) pay relatively more for the good to which they derive the benefit.
Second, Will's assertion that progressive taxation is responsible for "our baroque tax code" is wrong.
Piketty asserts that circumstances are changing: capital has been rebuilt and accumulated, progressive taxation is weakening, and growth is slowing.
The other countries apply progressive taxation. The main argument in favor of flat taxation is its simplicity in terms of calculations and administration.
In the financial practice, progressive taxation has two variants: taxation in simple (global) progressive rates and taxation in compound progressive rates (by instalments).
He advocates progressive taxation and a global wealth tax as the only ways to counter the trend towards the creation of a "patrimonial" form of capitalism marked by what he dubs "terrifying" inequalities of wealth and income.
Polaski also said "we think you have to really take a comprehensive approach, labour market policies, minimum wages, collective bargaining, social protection policies, social protection floors, progressive taxation and macroeconomic policy that pushes in the same direction as those other policies and not in the opposite direction."
Bulgaria will keep its flat tax rate of 10%, Parliament has decided, rejecting motions to re-introduce progressive taxation.
In Latin America, a shift to a more progressive taxation system in the early 2000s has been a significant factor behind the region's recent decline in inequality.
Recommendations include adjusting special funds, reducing government expenditure, reconsidering the method of calculating energy subsidies, along with applying progressive taxation.

Full browser ?