logo

Many perspectives, 1 simple etiquette

The Pros And Cons of Keeping a Progressive Tax System

image
Created: 22 February, 2017
Updated: 17 October, 2022
2 min read

When political leaders discuss tax reform, they often refer to "progressive taxation." What does this term mean? What pros and cons does this type of tax structure offer today?

Toward a Concept of Income Fairness

When the United States government first implemented a system of taxation, economists soon observed a uniform tax rate would fall more heavily upon poor people than wealthy ones. Why? Just consider this example. If one household earns $100,000 and another earns $30,000 and both pay a flat tax of 10%, the wealthy family can still spend $90,000 after taxes. The family in poverty must somehow scrape by on $27,000 (equivalent to $500 per week).

Since both households must pay certain necessary expenses, such as food and housing, the low income earner will experience far greater tax hardship than the affluent earner. Congress attempted to ease the tax burden on poor families by creating a graduated system of "progressive" taxation, taking a higher percentage of income as affluence increases.

Advantages of Progressive Taxation

Supporters of progressive taxation point to several benefits. First, this system enables poor and middle class households to live more comfortably while still paying taxes, a process investing them in citizenship. Second, it enables the government to establish high upper tax brackets to generate revenue.

Third, a progressive taxation system potentially produces more total income for the government to use to fight deficits than a flat tax. Fourth, progressive taxation improves the spending power of lower-income earners, potentially stimulating free market economies more effectively than flat taxes.

Disadvantages of Progressive Taxation

Progressive taxation offers several disadvantages to the American people. The grading system has given way to hundreds of complex incentives, which drives the cost of compliance up to more than $215 billion (compared to the IRS’s conservative $20 billion estimate). Congress has created complex rules for tax credits and deductions. A tax credit enables a taxpayer to subtract a specific sum from taxes owed to the government. It differs from a "deduction", which simply reduces the amount of total income subject to taxation.

Another disadvantage of progressive taxation is the inherit inequity in the system. Many politicians have made their political careers on promising to make wealthy Americans pay their “fair share,” but few of these ideologues can give any kind of definition for what “fair” means. After all, a flat tax rate would still require the wealthy to pay more, but the same percentage of their annual income. Under the current system, 47% pay no taxes, whereas the highest effective tax rates on upper-middle class families can approach 50% in some states, resulting in a so-called representation without taxation. Although the progressive tax system was implemented with fairness and equity in mind, the result is arguably a tremendous injustice.

Tax Reform Issues

Whether someone agrees or disagrees with progressive taxation, this idea does carry significant weight in modern tax reform debates. Both progressive taxation and tax credits will likely capture media headlines during any Congressional overhaul of the Internal Revenue Code.

References:

Investopedia - Tax Credit

Investopedia - Progressive Tax

Read more

fair maps
Gerrymandering Reform: Are We Asking the Wrong Question?
Photo Credit:  ...
01 March, 2024
-
7 min read
joined hands
10 Reasons Why Americans Are Not as Divided as You Think
Photo by on  Party leaders, politicians, and media pundits and talking heads would have US voters b...
28 February, 2024
-
7 min read
people
LetUsVote: New Campaign Launches to End Discrimination Against Independent Voters
Open Primaries, in partnership with Unite America, announced the launch of LetUsVote Wednesday, a nationwide initiative that aims to mobilize and empower independent voters, who make up the largest voting bloc in the US but are treated like second-class voters....
27 February, 2024
-
4 min read
voting
For Good or Bad, Primary Changes May Be Coming to Elections Near You
Photo Credit:  The last couple of years have seen an increase in states looking to change their prim...
26 February, 2024
-
4 min read
voted
The Primary Problem: Only 8% of Voters Elect 83% of Our Representatives
In his latest podcast, former Democratic presidential candidate and Forward Party Co-Founder Andrew ...
26 February, 2024
-
3 min read
Weber
Blame This One on Secretary of State Weber
Eight years ago, there was a competition still in play between Bernie Sanders and Hillary Clinton wh...
26 February, 2024
-
4 min read