Progressive tax is Progressive tax scale

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

Progressive taxation implies an increase in the effective rate with the growth of the base. As a rule, this mode is used for individuals. Consider further what a progressive tax scale could be.

Historical background

The progressive tax is a deduction that has become a practice due to the pressure of the farmers and the working class. For many decades, a struggle was waged, in which one or the other side alternately won. During this time, various attempts were made to implement reforms in the forms of taxation. As a result of the action of a complex of social and economic factors, a new scheme was developed. Progressive taxation was first used in Great Britain in 1798. It started at 2 pence/pound on income over £60 and increased to 2 shillings on income over £200. After almost a hundred years, the reform was carried out in Prussia. The tax in the country started at 0.62% and rose to 4%. By the beginning of the 20th century, the scheme began to be used inmost European states. In 1913, it was also used in the USA.

Using the scheme in Russia

The first attempt to introduce progressive taxation was made in the country in 1810. This was due to the exhaustion of the economy by the war with Napoleon. As a result, the exchange rate of the paper ruble fell sharply. The progressive tax system assumed an initial rate of 500 rubles, which gradually increased to 10% of net profit. After the end of the war, revenues to the state treasury began to decline. In 1820 the progressive income tax was abolished. In 1916 this regime was again established by the tsarist government. The adopted decree was supposed to take effect in 1917. However, this was prevented by the revolution. After the overthrow of the royal power, various decrees were issued over the course of several years, aimed at supplementing and developing the Tax Regulations. But only in 1922 was the reform carried out.

Simple bitwise progressive tax

This is the most common scheme used in many countries at the initial stage of reform. The base in this case is divided into digits. Each of them corresponds to a certain lower and upper limit of profit, as well as a specific fixed amount. One of the disadvantages of a simple progressive tax is the jump in payment at the boundary of the grades. Two profits that differ little from each other, but fall on opposite sides of the same limit, imply a significant difference in the amount of the deduction. For example, with a generalincome of 1000 rubles. the tax will be 31 rubles, and at 1001 rubles. - already 45 p. Another disadvantage is the fact that the person with the highest profit will have less money left than the one with the lowest.

Relative bitwise scheme

Such a progressive tax is similar to the one described above. This is also where ranks apply. Each of them is assigned a specific percentage rate. It applies to the entire database. At the same time, proportional taxation is used inside the category. But when you move to the next level of profit, there is a jump (the same as provides for a simple progressive tax). This leads to the fact that, as in the previous version, the entity with a higher profit will have less funds than the one whose income is lower.

Single-stage operation

This type of progression involves only one bet. In addition, a limit is used, below which income is not taxed, and above which a mandatory payment is provided, regardless of a subsequent increase. The rate itself is fixed (not progressive). However, taking into account the established limit, it increases with the growth of profit. The effective rate reflects the real rate of taxation that is applied to the object.

Multi-stage scheme

In this taxation, income is divided into parts. At each subsequent stage, the rate increases with an increase in profit. Their number can beminimum (2 or 3) or maximum (18, as in Luxembourg). A feature of this scheme is that in the process of splitting the rate is not applied to the entire profit in the aggregate, but only to the part that exceeds its lower limit. The final payment is calculated as the sum of all taxes for each step. In this scheme, there is also a real increase in the effective rate with an increase in profit. At the same time, the tariff curve is slightly undulating, decreasing as the number of steps increases.

Advantages and disadvantages of the regime

The introduction of a progressive tax on a multi-stage scheme allows:

1. Represent the entire model in the form of a simple table.
2. Perform simple calculations to determine the payment amount.
3. Change rates at each step separately, for each specific group of payers.
4. Index the level of profit, the tariff for which is 0%.

Among the disadvantages of this system, experts note the complexity in comparison with the proportional calculation scheme. In addition, in the case of indexation of the level of profit, including that not subject to taxation, it is necessary to increase the rate and expand the limits for steps. This is required to avoid falling fees.

Line diagram

In this case, the rate increase occurs without jumps. Due to its uniform increase, the effective tariff also grows gradually. Usually, in linear and multi-stage schemes, the maximum rate exceeds the initial one by several times. This causes moreslow increase in the effective tariff in the area of low profit than with a one-stage system.

Conclusion

It should be said that taxation is not only a financial and economic phenomenon. It is also seen as a political tool. In this regard, the approaches to its establishment reflect certain class interests. The proportional scheme is much easier to accept by we althy subjects, since it reduces the burden as the object increases. The progressive system affects their interests more. That is why we althy categories always oppose its use. Today, the choice of a progressive system is based primarily on discretionary income, that is, profits that are used at one's own discretion. In theory, it is defined as the difference between total revenues and those spent to meet immediate needs. Thus, discretionary income reflects the true solvency of subjects. With an increase in profits, the share of vital costs decreases. As a result, discretionary income increases.