economy and the federal budget over the long term. Combined, these issues will present increasing challenges for the U.S. Anti-tax slogans and too-good-to-be-true proposals to replace the current tax system are a smoke screen to avoid the reality the United States faces today: rapid income growth and profits at the top end of the income scale, as well as an aging population. America’s current tax code is out of step with the times-but not necessarily in the way that some politicians want voters to believe. Then we examine a hypothetical example of sales taxes paid on a flat screen television set.Policymakers agree that the U.S. First we review the federal income tax rates for 2005. The next two tabs illustrate progressive and regressive taxation schemes. A look at how the numbers work in these tax schemes helps illustrate the concepts of progressive and regressive taxes. In contrast property and sales taxes tend to be regressive in nature by virtue of the fact that they make everybody pay the same flat rate.īut if everybody pays the same flat rate shouldn't such taxes be considered neutral, neither progressive nor regressive? The key to understanding these concepts is to focus exclusively on the percentage of one's income that is paid for each type of tax. Most income tax schemes are progressive because they usually rely on graduated rates which increase the percentage of income paid as income rises. The impact of regressive taxes is exactly the opposite: they require those with lower incomes to pay a higher percentage of their income on such taxes. Progressive taxes require those with higher incomes to pay a higher percentage of their income on those particular taxes. All tax schemes can be characterized as either progressive or regressive.
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