RELATIONSHIP BETWEEN PROGRESSIVE TAXATION AND INCOME INEQUALITY

AUTHOR: RITUNJAY SHARMA

Source: Axios.com

Taxation is a term for when a taxing authority, usually a government, levies or imposes a tax. The term "taxation" applies to all types of involuntary levies, from income to capital gains to estate taxes.

Taxation is central to public policy because it is one of the main financial sources to support various policies, such as unemployment benefits and food stamp programs. In

addition, taxation pays for public goods that are shared by citizens. In modern society,

residents expect to have personal safety and basic protection (e.g., police, fire station), access

to clean water, clean air, sewer systems, reliable roads, primary education, public

Taxation is central to public policy because it is one of the main financial sources to

support various policies, such as unemployment benefits and food stamp programs. In

addition, taxation pays for public goods that are shared by citizens. In modern society, residents expect to have personal safety and basic protection (e.g., police, fire station), access

to clean water, clean air, sewer systems, reliable roads, primary education, public

taxation is central to public policy because it is one of the main financial sources to support various policies, such as unemployment benefits and food stamp programs. In

addition, taxation pays for public goods that are shared by citizens. In modern society,

residents expect to have personal safety and basic protection (e.g., police, fire station), access

to clean water, clean air, sewer systems, reliable roads, primary education, public

Taxation is central to public policy because it is one of the main financial sources to support various policies, such as unemployment benefits and food stamp programs. In addition, taxation pays for public goods that are shared by citizens in a modern society resident except to have personal safety and basic protection, access to clean water, etc.,

What is Progressive Taxation?

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.

Progressive taxation can be levied on people in four types:

1. Personal Income Tax- The Progressive personal income tax means collecting higher Taxes on the income of rich people. It reduces inequality in the distribution of income. However, the taxes should not be high enough to affect the incentive of earning more.

2. Wealth-Tax- It is the tax on property.

3. Capital Gains Tax – These taxes were collected on the capital gains and benefits earned through investments in capital assets.

4. Taxation of Profits – These Taxes are collected against the profits earned. However, these rates should be reasonable because these taxes reduce the savings of the shareholders and funds for further investments.

Income Inequality

Income inequality is an extreme disparity of income distributions with a high concentration of income usually in the hands of a small percentage of a population. When income inequality occurs, there is a large gap between the wealth of one population segment compared to another. There can be varying types of income disparity segregations and analysis used to understand income inequality.

The relation between Progressive Taxation and Income Inequality

A progressive tax is one that charges a higher tax rate for people who earn a higher income. The rationale is that people with a lower income will usually spend a greater percentage of their income to maintain their standard of living. Those who are richer can typically afford the basic necessities in life.

Gini Coefficient

A widely used measure of income inequality is the Gini index. The index has a value of zero when income is distributed equally across all income groups and a value of one when the highest income group receives all the income. By this measure, inequality has been consistently lower for after-tax income than for before-tax income.

Advantages of Progressive Taxation

A more progressive tax system would reduce income inequality if nothing else changes. Progressive tax systems reduce the (tax) burdens on people who can least afford to pay them, and these systems leave more money in the pockets of low-wage earners, who are likely to spend all of their money and stimulate the economy. Progressive tax systems also have the ability to collect more taxes than flat taxes or regressive taxes, as tax rates are indexed to increase as income climbs. Progressive taxes allow people with the greatest amount of resources to fund a greater portion of the services all people and businesses rely on, such as roads, first responders and snow removal.

Disadvantages of Progressive Taxation

Critics of progressive taxes consider them to be discriminatory against wealthy people or high-income earners. These critics believe the U.S. progressive income tax is effectively a means of income redistribution, based on the myth most taxes are used to fund social welfare programs. However, only a small portion of government spending is devoted to welfare payments.

About the Author,

Ritunjay Sharma is IV semester student at Institute of Law Nirma University, Ahmedabad.

E-mail- ritunjay.kinshu@gmail.com