the difference between a progressive tax and a regressive tax

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
< 10000	1%	50%
10000-50000	10%	30%
50000-100000	30%	10%
>100000	50%	1%

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.

The Difference Between Progressive and Regressive Tax

In simple terms, progressive tax is the opposite of regressive tax. Progress tax is when the more one earns, the higher the tax rate while regressive tax, being the direct opposite, is when one earns more, the lower the tax rate. Looking at the diagram on the left, one can see how as the income moves toward the left (increase) on the progressive curve, the tax paid increases while the opposite goes for the regressive. Because of this, regressive tax tends to help the richer and progressive tax tends to benefit the poorer.

In terms of types of taxes, income taxes, taxes that are directly related to income, are progressive while sales taxes, taxes put on goods and services, are regressive. This is done in order to keep the nation’s gap constant as the richer pay more for income tax while the poorer pay more for sales tax, which would neutralize each other. The wealthy pay less for goods therefore they would pay less sales tax but they would have to fill the gap by paying more income tax.

For example, if the tax rate for a single person A making 800,000 yen (about $8000) a month is 12%, the rate for the same single person B who makes 300,000 yen (or about $3000) would be much lower. Regarding regressive tax in sales taxes, because the same 30,000 yen for groceries would be worth less to person A than to person B in terms of income, person B pays more sales taxes since the tax rate for person A would be smaller than for person B. To keep this neutralizing method, luxury goods are taxed more for the wealthy buy more luxury good than the poorer does.

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