I usually find a news article and opinions of the economists at Bloomberg.com. It also contains market data, such as stock and currencies. When I need an article and clear analyze of it for my commentary, Bloomberg.com helps me a lot.
August 31, 2009
New fact about tax system
An effective tax rate, the percentage of your income you pay in taxes, is different from a nominal tax rate or legal tax rate. For example, if a rich spends $3000 in total taxes among his total income, $60000, his effective tax rate is 5%. In contrast, another person earns $30000 as total income and pays $3000 in taxes. This person’s effective tax rate is 10%, twice the rich pays. In this case, tax is regressive, and richer person pays less tax rate.
Over 10 years in the past, 1987-1997, people got richer in general and the income tax became more progressive. Increased rich people paid a larger share of taxes. Therefore, the statement “the rich are getting richer and the poor are getting poorer” is wrong. Not only the rich got richer, but also the poor got richer than before, according to the data table of Federal Individual Income-Tax Return Data both in 1987 and 1997.
August 24, 2009
Which tax system is the best?
Taxation is divided into two large categories: direct taxation (income/ labor/corporate tax) and indirect taxation (taxes on expenditure). It can be also divided into progressive taxation, proportional taxation, regressive taxation, and lump-sum. Progressive taxation is that tax rate increases as taxable income increases, and proportional taxation is that tax rate is fixed regardless the amount of income. Regressive taxation means that tax rates decreases as taxable income increases, and lump-sum taxation is that tax rate is set.
1. Progressive taxation:
- Lower incentive to work
- Used most world-widely
- Government can have high budget from taxation because of rich people’s high percentage taxes.
- Poor people can benefit from social welfare done with tax.
2. Proportional taxation
- Higher incentive to work.
- Unfair to poor people since they have to pay the same percentage as rich people.
- Government gets smaller amount of taxes.
3. Regressive taxation
- Higher incentive to work.
- Poor people might not be able to pay. (higher percentage)
Even though progressive taxation seems to help poor people by using rich people’s high tax, it actually is helping the economy to be healthy. Poor people can survive and they can spend money (inject money into economy). Also, rich people are earning high amount of money, which causes them safe despite of high taxation.
