What is the difference between a progressive tax and a regressive tax Why do you think the government uses both types of taxes to raise revenue quizlet?

A progressive tax is based on the taxpayer's ability to pay. It imposes a lower tax rate on low-income earners than on those with a higher income. This is usually achieved by creating tax brackets that group taxpayers by income ranges.

The income tax system in the U.S. is considered a progressive system, although it has been growing flatter in recent decades. For 2022, there are only seven tax brackets, with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. There were 16 tax brackets in 1985.

• A progressive tax imposes a higher percentage rate on taxpayers who have higher incomes. The U.S. income tax system is an example.
• A regressive tax imposes the same rate on all taxpayers, regardless of ability to pay. A sales tax is an example.
• A flat tax is an income tax that is the same percentage of income for all. The U.S. Social Security payroll tax would be a flat tax except that it has an upper cap.

The rationale for a progressive tax is that a flat percentage tax would be a disproportionate burden for people with low incomes. The dollar amount owed may be smaller, but the effect on their real spending power is greater.

The degree to how progressive a tax structure is depends upon how much of the tax burden is transferred to higher incomes. If one tax code has a low rate of 10% and a high rate of 30%, and another tax code has tax rates ranging from 10% to 80%, the latter is more progressive.

On the pro side, a progressive tax system reduces the tax burden on the people who can least afford to pay. That leaves more money in the pockets of low-wage earners, who are likely to spend all of that money on essential goods and stimulate the economy in the process.

A progressive tax system also tends to collect more taxes than flat taxes or regressive taxes, as the highest percentage of taxes is collected from the highest amounts of money.

A progressive tax also requires those with the greatest amount of resources to fund a greater portion of the services that all citizens and businesses rely on, such as road maintenance and public safety.

Critics of progressive taxes consider them to be a disincentive to success. They also oppose the system as a means of income redistribution, which they believe punishes the rich, and even the middle class, unfairly.

Opponents of the progressive tax generally are supporters of low taxes and correspondingly minimal government services.

The opposite of a progressive tax, a regressive tax, takes a larger chunk of disposable income from low-wage earners than from high-wage earners.

A sales tax is an example of a regressive tax. If two individuals, one rich and one poor, both buy an identical bag of groceries, both pay the same amount of sales tax. But the poorer person has shelled out a greater percentage of their income in order to get those groceries.

A flat income tax system imposes the same percentage tax on everyone regardless of income. In the U.S., the payroll tax that funds Social Security and Medicare is often considered a flat tax because all wage earners pay the same percentage. However, this tax has a cap. For 2022, the payroll tax is not applied to earnings over $147,000. That makes it a flat tax only on the people who earn less than that amount. Taxpayers earning more than $147,000 a year pay a lower percentage of their overall income in payroll taxes. That makes it a regressive tax.

No. With a progressive tax, you only pay your highest percentage on the portion of income that exceeds the minimum threshold. For example, if a single person makes $100,000 in 2022, they fall into the 24% bracket. However, only the portion of their income that exceeds the minimum threshold of $89,075 is taxed at that rate. The income that falls underneath that is taxed at 10% on the first $10,275, 12% on income up to $41,775, and 22% on income up to $89,075. In this scenario, only $10,925 would be taxed at 24%.

Tax brackets are set by Congress and enforced by the Internal Revenue Service (IRS). Changes typically come in the form of legislation like the Tax Cuts and Jobs Act of 2017, which kept the seven brackets but lowered the percentages of each one.

Progressive taxes exist so those that the burden of paying for government oversight and infrastructure doesn't fall disproportionately on those earning lower incomes. With a progressive tax system, those that earn less are taxed less; those that earn more are taxed more. Since the top earners are taxed more and on larger sums of money, that also increases the amount of tax money coming in.