What is the difference between progressive flat and regressive taxes

This tax is considered flat because it imposes the same percentage on all wage-earners, regardless of their income tax bracket. Internal Revenue Service. Federal Tax Service of Russia. Accessed Oct. Social Security Administration. Tax Laws. Social Security.

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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation.

Tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply.

Tax incidence does not consider the concept of tax efficiency or the excess burden of taxation, also known as the distortionary cost or deadweight loss of taxation, is one of the economic losses that society suffers as the result of a tax. For example, United States Social Security payroll taxes are paid half by the employee and half by the employer. However, some economists think that the worker is bearing almost the entire burden of the tax because the employer passes the tax on in the form of lower wages.

The tax incidence is thus said to fall on the employee and due to the need for workers for a particular job, the tax burden also falls, in this case, on the worker. In this example, consumers bear the entire burden of the tax; the tax incidence falls on consumers. On the other hand, if the apple farmer is unable to raise prices because the product is price elastic if prices rose, more demand would be lost than extra revenue gained , the farmer has to bear the burden of the tax or face decreased revenues: the tax incidence falls on the farmer.

When the tax incidence falls on the farmer, this burden will typically flow back to owners of the relevant factors of production, including agricultural land and employee wages.

Shared tax incidence : The imposition of a tax can result in a reduction to both consumer and producer surplus relative to the pre-tax scenario. Where the tax incidence falls depends in the short run on the price elasticity of demand and price elasticity of supply. Tax incidence falls mostly upon the group that responds least to price the group that has the most inelastic price-quantity curve. If the demand curve is inelastic relative to the supply curve the tax will be disproportionately borne by the buyer rather than the seller.

If the demand curve is elastic relative to the supply curve, the tax will be borne disproportionately by the seller. In the example provided, the tax burden falls disproportionately on the party exhibiting relatively more inelasticity in the situation. This characteristic results in a reduction of the ability of the party to participate in the market to the level of willingness that would have been present in the absence of the tax.

The loss is conceptually defined as a loss of surplus and the loss of surplus is characterized as deadweight loss. Policy makers evaluate the surplus and deadweight loss in relation to the imposition of a tax in order to better evaluate the efficiency of a tax or the distortion that the imposed tax causes on the attainment of market equilibrium.

Policymakers must consider the predicted tax incidence when creating them. If taxes fall on an unintended party, it may not achieve its intended objective and may not be fair.

Tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. Explain how elasticity influences the relative tax burden between suppliers and consumers demand.

In the U. But this doesn't mean that all your income is taxed at that rate, as there's a difference between a marginal tax rate and an effective tax rate.

That's because when your income enters a higher tax bracket, only the income that falls into that higher bracket is taxed at the higher rate. While there are a few ways to calculate effective tax rate, the simplest way is to divide you total tax by your taxable income.

TurboTax calculates effective tax rate in a more sophisticated way by adjusting for various recaptured taxes and tax credits. Progressive taxes are popular because they shift the burden of paying taxes to those who are likely most able to pay. Like federal income tax, progressive tax systems typically allow several deductions and credits. These tax breaks provide additional relief for low-income taxpayers, as is the case with the Earned Income Tax Credit.

They can also encourage certain behaviors. For example, the mortgage interest deduction encourages homeownership, and the American Opportunity Tax Credit encourages people to pursue higher education. But some tax breaks can also make it possible for high-income taxpayers to pay less tax than lower-income people. For example, preferential rates on long-term capital gains sometimes result in wealthy taxpayers paying a lower rate overall than their middle-class counterparts.

Inflation can also cause "bracket creep. A regressive tax is the opposite of a progressive tax because you pay a higher tax rate as your income decreases. There are two types of regressive taxes. Sales taxes are typically regressive proportional taxes because everyone pays the same rate, regardless of income. Flat taxes are when everyone pays the same amount, regardless of income.

Progressive vs. Regressive Taxation. But what do these terms mean, and why do they come up so often in tax discussions?

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