Understand What Is Progressive Tax And It Pros And Cons
You sure have heard of the term progressive tax, but have no clue about how it applies and what it does. Tax is helpful to push the development of a state and a country. However, it also can be a dangerous tool when you don’t know how to calculate it. Keep in mind, everyone carries the same tax burden. They only differ when they’re on different income brackets depending on the tax apply to them. This time, let’s talk about one of the popular types of tax, progressive. What does it do and how it affects you?
What is Progressive Tax?
In short, this type of tax will continue to progress as your income increases. This tax comes from the idea of sharing the spending burden to be more proportionate for the people with low income. A flat tax may seem to cost them less, but it still affects their income and make them unable to save or do other essential things.
The structure for progressive is to transfer the burden to the people with higher incomes. Of course, it will be proportionate to the reported yearly income. For example, a tax code that ranges between 10% to 80% is progressive because it covers multiple income brackets.
Pros and Cons
The progressive structure has several pros and cons that anyone must be aware of. In general, it’s helpful on so many levels. Especially for low-income people or those who are less capable to pay their taxes in full. It also collects more money than a flat or regressive since people with higher incomes will have to pay higher taxes. In the long run, the progressive scheme will help the country to fund more of their public services such as road maintenance and improving healthcare.
Many critics disagree with a progressive scheme because it means punishing the wealthy upper class and putting the middle class in difficulties. It is also unfair for the middle class as they’re in the bracket that the tax affects the most. They can’t apply for lower taxes because they have enough income, but the amount they must pay may affect their spending and saving ability.
Progressive vs Flat
A flat tax will charge everyone the same amount disregarding their incomes. The most common example is the value-added tax and service charges that are common in the hospitality industry. Unlike the progressive scheme, this flat tax scheme has a cap to ensure that there is no discrepancy in the tax burden and to focus on the tax-benefits recipients.
Having a progressive tax scheme is good since it distributes the tax burden to be more proportionate to the income. This allows low-income people to focus on building their finances. It also means you just need to pay tax based on the income that surpassed the threshold. In many cases, a progressive scheme has more chances to help fund the country’s development and maintenance.
