Some people argue regressive taxes also help to balance out progressive ones. For example, items such as tobacco or alcohol have extra taxes added to them because they’re considered harmful. In some cases, this might incentivize people to stop purchasing those products. Regressive taxes also ensure that those who use a product or service more frequently pay the most taxes on it. Can you imagine if store clerks had to ask each customer how much they earn and calculate their sales taxes based on that information? It would be far too complicated. One benefit of regressive taxes is that they may be easier to apply.įor example, everyone pays the same sales tax rate regardless of their income. The three most regressive tax states in the country are Washington, Texas, and Florida - None of these states have a state income tax (meaning states rely on sales and property taxes), and the poorest in the state pay 10% to 15% more of their income in taxes than the richest.Īs with other tax systems, regressive taxes have both advantages and disadvantages. This trend is especially true in states that don’t have state income taxes, and instead rely more heavily on regressive taxes like sales and property taxes. State and local taxes often result in low-income earners paying a significantly higher percentage of their income in taxes. But the tax structure also varies by state, which can look far more regressive at local levels. When you account for both the progressive and regressive taxes in the major Western countries, the United States has a particularly progressive tax system. We don’t have VAT in the United States, but in Europe, they use VAT to charge a consumption tax on products at each step of the supply chain when any value is added. In Western Europe, the primary regressive tax is their value-added tax (VAT). In the United States, these taxes include sales and excise taxes. In the United States and most other countries, income taxes are intended to be progressive - Higher earners pay a more significant percentage of their income in taxes.īut consumption taxes, meaning those you pay based on things you buy, tend to be regressive across the board. Similar to the United States, many other countries in the world have a combination of progressive and regressive taxes that make up their tax revenue.
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