Kabir's Econ Blog

August 25, 2009

What taxation works the best?

Filed under: section 3 — kabir1892 @ 10:30 am

Definitions:

Progressive tax: As a persons income rises, a larger amount of their income is payed for tax.

Regressive tax: As a persons income rises, a smaller amount of their income is payed for tax.

Proportional tax: The percentage of the income that is payed for tax always remains the same. No matter how much income a person receives.

Pros:

Progressive tax: The poor are not badly affected by the tax since they have to pay a reasonable price or tax compared to the income they earn. Also, the rich wouldn’t lose that much if they earned a lot income.

Regressive tax: The rich have a huge advantage over the rest of the people in the economy because they wouldn’t have to pay  a lot of tax. The middle class will be satisfied with this since they would have to pay a decent amount of tax. The government will earn a lot in a country that is not so developed since there will be a wide variety of different people earning different incomes. So the government in that country will earn a lot from the poor and a good amount from the rich.

Proportional tax: This is the most simplest system of taxation. The government would not have to be too concerned with the tax that they earn since it is pretty much fixed. In a developed country governments will get a lot from the the tax. 

Cons:

Progressive tax: An obvious negative side in this tax system is that the rich have to pay more tax than the poor. Another negative aspect is that this tax system might not be successful in country’s that have a majority of poor people or undeveloped countries.

Regressive tax: The main negative side to this tax system is that the poor are badly hurt. The poor would have to pay more tax than the rich even though they earn less income. This can lead to bankruptcy and eventually lead to black marketing and corruption.

Proportional tax: The affect that this tax system has on the economy negatively depends on the amount of people that are poor. If there are a lot of poor people, this system would affect the country a lot. In addition, usually in a poor country, there are some that are very rich. This system will only benefit those people. From the governments point of view, this system would be bad in a poor country as well since they would have to set the tax system to be very low to match the average income that the overall population is earning.

Evaluation: After carefully thinking about and examining which tax system would work the best, I would say that the progressive tax system is the best tax system overall in either developed or undeveloped countries. This is because it is fair for  people that earn more to give more to the government, just as it is right to give charity. By giving tax, you are helping the economy and using it for a reason. Also, if you were to compare the amount of income a person earns in comparison to the tax they are paying, a poor person would be paying about the same amount from his income as would a rich person. The only difference would be the amount they give. This system is used in a lot of countries and those countries are successful today.

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