A progressive tax structure, which is adopted by a majority of advanced industrial nations, means that there are different brackets of income that are taxed differently. Specifically, higher ranges of income are taxed at a higher rate than lower ranges of income. In theory, this means that wealthier families and individuals pay a higher tax rate than lower income families and individuals (not including credits and tax breaks). Here are some of the pros of the progressive tax code…
PROS
- Less income inequality
One of the principal advantages of utilizing a progressive tax structure is that it reduces income inequality in a society. Because those with the least amount of income pay the least into the system, and those with the most income pay the most into the system, then it creates a bit more of a level playing field. The inherent philosophy behind this, from a dogmatic standpoint, is that those who are the most successful have also benefitted the most from the system, and so contribute a higher amount to ensure that those systems remain in place to benefit others.
- Generates more revenue
A progressive tax code tends to generate more revenue for the government than alternative tax strategies. The reason for this is quite simple: rich taxpayers are able to contribute more. Because lower income taxpayers pay lower tax rates, those losses are offset by higher tax rates on wealthier individuals. A 20% tax rate on a billionaire are certainly going to generate more revenue than a 20% tax rate on a family that makes $40,000 per year. On top of that, because the tax burden is higher on the top, then the revenue tends to expand services provided throughout the rest of society.
- Built in safety nets
There is an inherent safety net that is built into a progressive tax structure, long before the taxes are ever used in a social program. Essentially, when a taxpayer has a lower income and can afford less, their tax burden will decrease. This helps individuals who fall victim to difficult circumstances mitigate some of their losses because they are expected to pay less into the system.
Our next article will examine the cons of the progressive tax structure.