Tax system

In a few years, we will have graduated from university or college and be working in the real world. We will be much more interested in taxes than we are right now because we will be paying taxes. Some of us will be paying high taxes, so the sooner we learn about tax systems, the better. There are a lot of categories of taxes but I’m going to discuss three taxes, each of which is based on a tax rate.

Progressive tax system

The progressive tax is based on a person’s income and expenditures. Progressive tax increases as an individual’s level of income increases. For example, if you earn $10,000 a year, under a progressive tax, your tax rate could be 10 percent, meaning you would pay $1,000. If you earn $50,000 a year, a progressive tax rate could be 20 percent, meaning you would pay $10,000. And if you earn $100,000 then taxed at 30 percent, you would pay $30,000. Many countries including Canada are using the progressive tax system for the following reasons:

Advantages of progressive taxation:

1.       Proper distribution of money: Since progressive taxation allows income-based taxes, a person with low income will pay much less than a person with a high income. This is an effective way for proper distribution of wealth.

2.       Protects the lower income group: Progressive taxation system allows the lower income group to pay less in taxes. Since most of the working population falls in this category, progressive taxation is favored by most.

3.       Protection during recession times: Progressive taxation system also protects people during recession times because if their income drops, they fall into lower income bracket.

4.       Stable income stream: Progressive taxation also allows the government to have a stable income stream even in times of depression.(http://www.credit-terms.com/tax/progressive-taxation.html)

Personally, I’m not sure about this system if I earn a lot of money. However, I think this system is fair because even though people earn a low income, they still need to buy the basic necessities for their families. If they paid the same percentage of their income as the rich, the poverty rate of our country would increase hugely. Many of the rich think this system is unfair because they are paying a higher percentage of their income than the poor; thus the tax system is discriminating against them. Other disadvantages include:

1.       Prevents taking high paying jobs: Progressive taxation system may also prevent individuals from taking a high paying job because most of their income would be taken away as taxes. It also discourages individuals to work harder to gain higher incomes.

2.       Encourages emigration: High progressive taxation system can encourage high earning workers to move overseas to escape the tax system.

3.       Encourages hiding of assets: High progressive taxation system can also encourage high income earners to opt for off-shore banking by which they can hide their assets and save taxes.

Regressive tax system

The second tax system that I looked at is the regressive tax system. It is opposite to the progressive tax system. People earning a high income pay a lower percentage of tax than people earning a low income. However, it does not mean that lower income people pay more taxes, they just pay a higher percentage of their income in taxes. For example, if someone earning $ 40,000 per year pays 10 percent of his income he pays $4000. However, if someone earning $ 10,000, pays 20 percent of his income, he pays $2000.       Therefore, the higher income person is paying more money but the lower income person is paying a higher proportion of tax on his lower income.

In my opinion, the regressive tax system is unfair to poor people. Even though they pay less money than the rich, the government is taking a larger proportion of their income. That means that the poor have less income than the rich to pay for basic necessities. That’s why affluent nations don’t use this as an income tax system.

                    

Proportional tax

Proportional tax is a tax with a fixed rate like 10%. There is no change in the tax rate if incomes increase or decrease. It is also called a flat tax. It does not consider an individual’s circumstances. For example, if someone is earning $100, they have to pay 10 percent of their income which is $10 and if someone is earning $10,000, they also pay 10 percent of their income which is $1000. People like this tax because it treats everyone equally. It is easy to understand and it’s easy to calculate the amount of taxes owed. In this system, there would be no exemptions, deductions, or tax credits .Therefore, it prevents people from cheating and encourages people to earn the highest income possible which is a benefit for the government and the society.

However, in my personal opinion, I don’t think it is fair tax system because it takes more of a poor person’s income pay 10 percent than it does of a rich person’s income. Poor people may feel more burdened by this tax. They will have less disposable income after paying it than will affluent people.

My opinion

Before I studied these tax systems I had no knowledge of how governments levy taxes. Now I know there is no perfect tax system but some systems are fairer than others. Since all citizens pay taxes, the government should help them understand the tax systems. Also the government should understand that inequalities exist in citizens’ ability to pay taxes and consider those inequalities when levying taxes. In my opinion, the progressive tax system is morally the fairest system of the three. That doesn’t mean that I will enjoy paying high taxes when I’m earning lots of money in the future. However, it reflects the best way of achieving equality and fairness in the tax system.

https://www.youtube.com/watch?v=8DuFDXoJhEs – progressive tax