SL and HL Formative Writing: With the use of examples, explain the difference between a progressive tax and a regressive tax. (200-300 words)
Tee difference between a progressive and a regressive tax is that a progressive tax is a direct form of taxation where the rate of taxing increases as income increases, whereas a regressive tax is an indirect tax where the rate of taxing decrecreases as income increases. A direct tax is where a proportion of a person’s income is taken, whereas an indirect tax a where a proportion of the money spent on goods is taken.
|Income $||Progressive Tax Rates||Regressive Tax Rates|
A real world example of Progressive tax is American income taxes. At the lowest level of income, in this table less than $10,000 the income tax rate is the lowest, 10%. As the income level increases, the percentage tax rate also increases until the highest income bracket of greater than $100,000, where the tax rate is 50%.
American sales taxes are an example of regressive tax. If there is a flat tax rate of 15 cents per gallon of gasoline, and a person in the lowest income bracket purchases the same amount of fuel as a person in the highest income bracket, the flat tax rate takes 50% of the poorer persons income, where as for the rich the tax only cost them 1% of their income. This is because flat monetary amount of money takes a smaller portion a higher income than that of a lower.