Title: Proportional Versus Progressive Taxation - Systems of Taxation - Proportional Principle of Tax - Progressive Principle of Tax - Definition and Explanation - Economicsconcepts.com
Headings: Proportional Versus Progressive Taxation:
Proportional Versus Progressive Taxation:
Systems of Taxation:
(1) Proportional Principle of Tax:
Definition and Explanation of Proportional Principle of Tax:
(2) Progressive Principle of Tax:
Definition and Explanation of Progressive Principle of Tax:
Arguments in Favor of Progressive Taxation:
Arguments Against Progressive Taxation:
Relevant Articles:

Content: Taxation is said to be progressive when the rate of tax increases as the tax base increase. For instance, the monthly income of a person is $9000 and he is asked to pay 2% of his income to the government. Suppose further that hrs monthly income rises from $9000 to $15000.per month. The government instead of taking 2% of his income in a tax asks him to pay 6% in the form of tax. Arguments in Favor of Progressive Taxation: (i) The most powerful argument advanced for progressive taxation is that it leads to equality of sacrifice, whereas proportional taxation does not. As the income of a person increases, the marginal utility of income gradually decreases. So, if a man with higher income is taxed at a higher rate, it would not be unfair, but will be quite in conformity with the principle of justice. (ii) Progressive taxation is also justified on the ground that it yields more revenue to the state than proportional taxation. (iii) The merit of progressive taxation lies in the fact that it greatly helps in reducing the inequality in income by higher taxation oh the rich classes.