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.
The different form of taxes are well defined in this blog and really show understanding of how taxes function in different societies. Although, I believe that next time your response should be a little more in depth. Also with your response about which kind of taxation you believe works best. I agree that Progressive Taxation may bring in more income tax than proportional which may help the welfare of the society. But I think that proportional taxation is more of a equal way to collect taxes from the population.
Comment by Mudit Suebsukchareon — August 27, 2009 @ 8:57 AM |