Question

Locate an article that focuses on progressive and other types of tax systems.  Answer whether you feel our system is fair.  What alternative method would you propose?

Answer 1

Two kinds of taxes i.e. regressive & progressive.

1. The progressive tax is a tax which increases in proportion to increase in level of income of tax payer.

Example: The Tax slabs under direct taxation where tax rate increases with increase in income level.

Advantages

> It removes inequality by taking more tax from high-income group

> It is cost effective because no cost arises in the case of an increase in tax rate due to income level.

2. The Regressive Tax is a tax which remains same / independent to level of income.

Disadvantages

> It demotivates hard workers

> It leads to crime

Example: the indirect taxation. Like all of us pay same tax on Starbucks coffee despite income level.

Advantages

> There is no chances tax evasion in the case of indirect taxes.

> The burden of the tax falls equally on everyone without any distinction.

Disadvantages

> It is more harmful for poor section due to less purchasing power.

> It will lead to inequality i.e. increase the gap b/w rich and poor.