Taxes can be divided into two based on their impact on the incomes of the rich and the poor. Progressive tax refers to tax rates that tend to be based more on higher-income individuals and thus have a higher impact on them (Horton). Regressive tax rates, on the other hand, are tax rates that are higher on the side of the low-income earners as opposed to higher income earners. In essence, progressive tax refers to tax which rises with an increase in income. The rationale behind this form of taxation is that if you can earn more, you can pay more. Therefore you should. Individuals with higher incomes can afford necessities thus the surplus in their income can be taxed more. This system tends to affect the upper class more than the middle and lower classes.
Progressive Taxation and Ethics
As the name suggests, progressive tax increases based on the amount of income. Income is divided into sections. Each income section has a percentage that is deducted from it. This percentage tends to increase (Horton). For instance, two individuals with one earning $50,000 and another earning $30,000 are taxed as follows. For both, a tax rate of 10% will apply for income less than $10,000. That leads to a total of 1000 dollars deducted for both. The next rate of 15% will apply for both since it is for incomes between $10,000 and $30,000. The deduction here is $3,000 for both. At this stage, the deduction for both of them totals to $4,000. The next deduction follows a rate of 25% for taxable income between $30,000 and $60,000. This applies only to the first individual leading to a deduction of 5,000 dollars. The resulting deduction thus for individual A is $9000 while it is $ 4000 for individual B (Hagopian).
Regressive taxes do not target specific income brackets like the progressive tax. Rather, they are uniform for the high, medium and low classes. The effect, however, is anything but uniform. The high-income earners have higher purchasing power thus they will not be affected like the low or middle class would (Hagopian). An example is the sales tax. Since the tax is equal, the percentage of the income used to purchase this product by the high-income earners is far much less than the low-income earners. There are ethical arguments both for and against progressive taxation. Firstly, someone who earns more has leveraged the favorable socioeconomic system to their advantage (Hagopian). Thus the gains they get from it are disproportionate compared to those who get more. To that effect, it makes more sense to tax them more so that such a system is maintained so that all in the system may benefit regardless of contribution.
Conversely, since these high-income individuals have more leverage in this socioeconomic system, taxing them more will make them exploit the system more to compensate for the taxation. For example, most of these high-income individuals are also job creators. If they are taxed more, they more often have to let go some of their stuff to maintain their profit margins (Hagopian). Thus, progressive taxation hurts the low-income earners more as they have less leverage in the socioeconomic system compared to high-income earners.
Taxing higher income individuals at higher rates helps to reduce government budget deficits. The higher income individuals are a major source of government funds meant to offer services to the citizens (Hagopian). Most of these individuals who depend on government services, in places like healthcare, are never from the high-income bracket. Opponents of progressive taxation claim that among the best way to deal with the deficit is to reduce government spending. The problem with this argument is that the quality of government services is often subpar; cutting down spending will lead to the elimination of some of these important services while drastically lowering the already unimpressive quality of the critical services.
On the other hand, every citizen in a country has equal rights regardless of socioeconomic status. This means that government offers the same services to all its citizens. Asking the rich to pay more for services that they are equally entitled to, is an ethically preposterous suggestion (Hagopian). If the rich pay more for services of the government, should not they be entitled to better services? For instance, in the event one needs to renew their driving license, should not a high-income individual get faster services than the low-income individual?
Conclusion
The major problem when it comes to progressive taxation is that of economic efficiency versus fairness. Some would rightly argue that it is justified to have those in the high-income tax bracket pay more because they earn more and thus have a moral obligation to do so. Others would add that if they pay more the lower income earners will indirectly be affected as the high-income earners try to recoup what they lost from the heavy taxes.
Works cited
Hagopian, Kip. "The Inequity of the Progressive Income Tax." Hoover Institution, 1 Apr. 2011, www.hoover.org/research/inequity-progressive-income-tax.
Horton, Melissa. "What Are the Differences Between Regressive, Proportional, and Progressive Taxes?" Investopedia, 4 May 2018, www.investopedia.com/ask/answers/042415/what-are-differences-between-regressive-proportional-and-progressive-taxes.asp.
