PROGRESSIVE AND REGRESSIVE TAXES

Progressive and regressive taxes describe the tax table, not a political opinion. It’s like a mathematical function. In a progressive tax, the more you earn, the higher your tax rate. The opposite of a progressive tax is a regressive tax. In this case, the less you earn, the higher your tax rate.

The classical progressive tax is income tax, where people with more income pay a higher percentage of it in taxes.

The classical regressive tax is income tax, where people with more income pay a less percentage of it in taxes.

The classical regressive tax is sales tax (since lower income people spend a large portion of their income). For example, let’s imagine two frugal travelling salesmen. They each have to buy a new car every four years to (say) keep up appearances, and they need reliable transportation. (One guy makes 20K, the other 300K).

Poor boy buys a $20, 000 car pays $1, 000 or 5% of his income.

Rich boy buys a $60, 000 car pays $3, 000 or 1% of his income.

Many taxes tend to be regressive in practise: social security taxes (because they exclude interest, rent, and other kinds of income common for the affluent), excise taxes and etc. (a flat tax, also called a proportional tax, is one where the tax amount is fixed as a function of income, and is a term mainly used only in the context of income taxes).

All known functioning systems of taxation have a balance of progressive and regressive taxes. This idea is almost never debated, the debates are over where the balance point should be, how much burden should be on the rich, and how much burden on the middle and the poor, In particular, progressive taxes soak the rich, regressive taxes soak the poor.

The argument for a progressive tax system is that people with higher income tend to have a higher percentage of that in disposable income, and can afford a greater tax burden. A person making exactly enough money to pay for food and housing cannot afford to pay any taxes without it causing material damage, while someone making twice as much as one can afford to pay up to half their income to taxes. The converse argument is that too progressive a tax rate acts as a disincentive to work.

For example, in the United States (2004) there are six tax brackets that are used to calculate the percentage of income that must be paid as income tax to the federal government. If an individual’s yearly income falls within a particular tax bracket, they pay the listed percentage of their income on each dollar that falls, within that monetary range, for example, a person who earned $10, 000 in 2003 would be liable for 10% of each dollar earned from the 2, 651^st dollar to the 9, 700^th dollar to the 10, 000^th dollar, for a total of $749, 75.

 

Vocabulary

1.	progressive tax (n) regressive tax (n)	– прогрессивный налог; налог, взимаемый по прогрессивной шкале – регрессивный налог
2.	rate (n) tax rate	– ставка, тариф – ставка налога
3.	income (n) income tax	– доход – подоходный налог
4.	sales tax (n)	– налог с оборота, налог на продажу
5.	frugal (adj.)	– бережливый, экономный
6.	to keep up to keep up appearances	– поддерживать – соблюдать приличия
7.	reliable (adj.)	– надежный, прочный
8.	K = one thousand
9.	social security tax (n)	– налог в фонд социального обеспечения
10.	to exclude	– исключить
11.	rent (n)	– арендная плата
12.	the affluent (n)	– богатый
13.	excise tax (n)	– акцизный сбор
14.	flat tax (n)	– фиксированный (подоходный) налог
15.	to debate	– оспаривать
16.	burden (n) tax burden	– бремя, долговое бремя – налоговое бремя
17.	to soak (slang)	– выкачивать деньги
18.	disposable (adj.) disposable income	– такой, которым можно распоряжаться, свободный – располагаемый доход
19.	to afford	– позволять себе
20.	damage (n) material damage	– повреждение, ущерб – материальный убыток
21.	to cause	– служить причиной
22.	to act	– действовать
23.	disincentive (n)	– препятствие, сдерживающее средство
24.	tax bracket (n)	– налоговая категория, группа по налогообложению
25.	listed	– включенный в список
26.	range (n) monetary range	– диапазон, коридор (цен) – денежный диапазон

 

Exercise 2

In the text find the answers to the following questions.

1. What does a progressive tax mean?

2. What does a regressive tax mean?

3. Which taxes refer to the classical progressive tax? Give an example.

4. Which taxes refer to the classical regressive tax? Prove it.

5. Which kind of taxes (progressive or regressive) do many taxes tend to be?

6. What is the argument for a progressive tax system?

 

Exercise 3