Question

Why are the tax rates progressive?

Answer 1

Taxes are progressive in which the tax rates 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 margins tax rate.

Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability to pay.

Taxes are progressive to impose a higher rate on the wealthy than on the poor. The wealthy can afford the basics. A tax decreases their ability to invest in stocks, add to retirement savings or purchase luxury items.

There is a proper distribution of tax burgen by taxes being progressive. Those with broader financial shoulders carry the heaviest burden.

Also because of taxex being progressive, there is a safety net for the less fortunate in the society to ensure their tax burden is not crippling.

Because of this government is able to receive a lot of revenues as compared to a proportional tax system.