We shall begin the paper with defining what progressive and regressive tax systems are. A progressive tax is one which places a larger percent on the high-income segment of earners than what it does from the low-income segment of earners. This form of tax depends upon how quickly a change arises in the tax rates in comparison to an increase in income. Regressive tax system on the other hand, which is not as popular as the former, is a tax that takes an increased percentage of income form the low-income earners than what it does from the high-income earners in an economy.
Progressive Tax:
According to Encyclopedia Britannica, a progressive tax is a tax levied at a rate that increases as the quantity subject to taxation increases. This form of tax is imposed in an economy in an attempt to reduce the tax incidence of people with a lower ability to pay as the tax shifts the incident to the people with a higher ability to pay. The table below shows an example of a system of progressive tax in the UK. From the above diagram we come to know that the people in or under the income
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One main issue with regard to a regressive tax system is that it limits the chance of people in the lower income group to purchase expensive and exquisite goods as they are priced and taxed in a very high rate. Besides, when a regressive tax is based on consumption such as a sales tax, it can introduce an element of freedom of choice. Only those who choose to use a particular product or service must pay the tax, and those who consume more frequently pay more taxes than occasional users. People also have some measure of control of how much they pay in taxes. If they wish to lower what they pay in taxes, they can elect to cut back on or discontinue the use of an item. Lastly, this kind of tax is usually levied on commodities which are priced low. This in fact decreases production of those kinds of products in the