Question

What are the three types of tax systems?   What happens to the average tax burden as income increases in each of the systems? What are some examples of each type?

Answer 1

The three types of tax systems are regressive tax system, progressive tax system and proportional tax system.

In regressive tax system, the government levies tax on assets that people purchase or own. As income increases, the average tax burden decreases. One example is sales tax. If a person earns 1000 dollars a year and soends all of it, and if the sales tax is 10%, he pays 10% of his income on tax. But if a person earns 10000 and spends 1000 dollars, he spends only 1% of his income on tax.

Progressive taxes are charged on income or business profits. As income increases, the average burden increases as this tax rate increases if the person's income falls within a higher tax bracket. Example is income tax

Proportional tax rates remain the same and they are charged at a flat rate for all levels of income. The average tax burden remains the same since everyone is paying the same set percentage of their income as tax. Example: occupational taxes