What is interesting about the progressive taxation scale

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

The amount of money coming into the state budget is constantly controlled by the country's tax system. In order to redistribute the tax burden from poor to rich citizens, legislators came up with a progressive taxation scale, which was used in Russia until 2000. But along with the positive aspects, progressive taxation, as it turns out, has its drawbacks, which make it not very popular.

What is progressive taxation

In simple terms, a progressive tax is a fee that is charged in proportion to the income received. In other words, the more you get, the higher the tax.

Such a taxation system makes economic sense. It is designed to redistribute tax payments between citizens,who have different levels of income. The progressive scale is able to most effectively manage the social stratification of the population.

Which tax was progressive

The progressive scale of taxation in Russia was applied to personal income tax. Depending on the amount of income received, personal income tax had several interest rates. For each category, certain profitability limits were set, in case of exceeding which the rate changed upwards. Due to the fact that the taxable base was calculated on an accrual basis, the tax increase for employees of the enterprise took place towards the end of the year.

The main types of taxation with a progressive nature of accrual

Progressive taxation can have different payment mechanisms. In this regard, they can be divided into several types:

• The single-stage accrual is based on the minimum non-taxable income and a fairly high rate.
• The multi-stage accrual principle has several levels of profitability, limited to certain amounts. Within the framework of such a system, from two to fifteen steps can be used. An interesting feature of this accrual method is the fact that when moving to the next step, the increased rate is valid only in that part of the profit that exceeds the established threshold.
• Progressive taxation scale can have a linear accrual principle. It is based on a gradual increasethe main tax rate, depending on the income growth factor. Such a system is considered quite effective, but difficult to implement.

Each of the above progressive taxation systems has its pros and cons and is applied in different countries, depending on the state taxation policy. So, in some countries, a certain type has ensured the effective receipt of budget payments, while in others the method has completely failed.

Will the progressive tax return to our country?

Most recently, legislators again raised the issue of introducing a progressive taxation scale. The proposed method is based on a multi-stage accrual method. Each separate category is assigned its own tax rate, and when moving from one level to another, income is taxed in terms of exceeding the standard. For example, a category of persons with an income of up to 60 thousand rubles was proposed. set the rate at 5%. Higher incomes - from 60 to 600 thousand rubles. - tax 15%, and accruals from 600 thousand rubles. – 25%. But, despite the fact that such a progressive scale of taxation could bring significant revenues to the budget, the law was rejected. The method was postponed until the time when it becomes the most effective for the economic development of the country. Also, the reason for the rejection was the high costs associated with the implementation of such a system.

Striped taxation system

An alternative example of progressive taxation could bea differentiated system for calculating fees for value added tax is given. The essence of the idea is that when taxing basic necessities, it is proposed to use the lowest rate, and for expensive goods to apply a higher one. It is assumed that citizens with the highest incomes are the main buyers of luxury goods, in connection with this they will pay a tax at an inflated rate. In turn, citizens with low incomes will be relieved of this burden. Such a system can most evenly distribute the tax burden among the segments of the population.

Flat and progressive taxation are in constant competition. Supporters of flat taxation argue that a progressive scale reduces the motivation of citizens to earn more, since tax collections increase with income growth. In turn, a flat scale does not contribute to the establishment of social justice, equalizing all citizens, regardless of income level.

Pros and cons of progressive taxation

Like any system, progressive taxation has its positive and negative characteristics. Among the advantages, one can note the effective receipt of budget payments, the reduction of the social division of society. The disadvantages of the progressive scale include an increase in shadow incomes, an increase in unemployment, a decrease in material incentives, and high costs forimplementation.

If we analyze all of the above, we can conclude that the progressive taxation scale is a rather powerful regulator of social inequality and a source of additional income to the budget. It is possible that the taxation models proposed by legislators are not entirely ideal, but there is confidence that, based on the experience of other countries and taking into account the peculiarities of our economy, the correct decision will be made as a result, which will be most acceptable to ordinary citizens.