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Progressive Tax |
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Progressive tax is a kind of system of taxation in which rate of interest of the tax increases with the increase of disposable income. The term progressive tax is most commonly used when anybody is talking about the income tax. In the taxation system where progressive tax is followed, people having high income pay more tax than the people earning lower than them. This kind of taxation is done with a view to establish social equity.
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Progressive tax reduces the burden of tax from the heads of the people of lower income groups. It also highly beneficial for the economy as the people of lower income group get more opportunity to spend more. This is also very helpful to eradicate poverty from the developing countries and to create wealth
among the poor. The idea of progressive taxation has got support from the economists starting from Adam Smith to Karl Marx. Adam Smith in his famous book The Wealth of Nation wrote about the usefulness of the progressive taxation. Progressive tax is highly beneficial for a developing country bas it gives the poor more chance to buy their necessary items which they need to support their lives.
The opposite of progressive tax is regressive tax. This type of taxation exempts the people of higher income group from paying tax or it may ask them to pay tax at a rather low rate. So both the progressive taxation and regressive taxation are the two most extreme points of taxation. In between these two points there is also a type of tax which is called as proportional tax. This kind of taxation maintains parity of taxations of the people of different income groups.
There are also some negative sides of the system of progressive taxation. This kind of taxation reduces the chance of investment by the people of higher income group. It also reduces savings that would have been done by the people of higher income groups.
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