Question

Describe the three classifications of taxes, and provide at least one example of each type.  If most taxes are regressive, does it seem that this is intentional or an unintended consequence of trying to design a tax system that achieves the somewhat conflicting goals of both: 1) the production of revenue adequate to meet the expenditures of the government; and, 2) is not so burdensome that it substantially curtails the economic activities tied to the growth that every economy wants and needs?

Answer 1

Ans) In simple words, taxes are any amount deducted from the money earned by the government. Taxes are an extremely important source of revenue generation for the government without which it would be difficult for it to operate and carry out administrative and developmental projects.

There are three types in which taxes can be classified. These are the proportional tax, the progressive tax, and the regressive tax.

Regardless of income, the proportional tax imposes the same percentage of taxation on everyone. The average tax rate is constant, the percentage tax rate is also constant, regardless of the earnings. It simply means that if the income rises, the percentage of total income paid in taxes doesn't change.

The other type of tax is the progressive tax, it imposes a higher percentage rate of taxation on higher incomes. Progressive tax uses a marginal tax rate that increases as the amount of taxable income increases. The percentage of the amount earned that is paid in taxes gradually increases as the income goes up.

Lastly there is the regressive tax, which deducts a higher percentage rate of amount as taxes on low incomes earned than on high incomes. For example, if the sales tax were 6%, people with the lower income would pay a higher percentage of the total income in sales tax.

In some cases regressive tax can be prove to be fair enough, as taxing everyone at the same rate can be seen as unjust in other cases. In most income tax systems, progressive taxes are employed in which the taxes on high-income earners is employed at a higher percentage rate than low-income earners.

Taxes are employed in order to generate revenue and to achieve projected economic goals. Governement tries to increase revenue through employment of different types of taxes, one of them which is regressive tax. Depending upon the incomes, this type of tax can prove to be a burden and also an effective measure of generating revenue.