Progressive taxation can be an important tool in conserving
natural resources, since it increases the relative present value of future
returns, by reducing the returns to immediate exploitation of the resource. Consider an example: A capital good, a wood lot, say, provides an
income stream of $100,000 in perpetuity.
Now, if the tax is flat, and the resource can be cashed out, for
$2,000,000, and invested at interest for 5%, then the owner would be
indifferent to exploiting or conserving the resource. On the other hand suppose, with a progressive
tax, the $100,000 was taxed at a miniscule rate, and the $2,000,000 at
50%. Then the owner would have to be
able to invest the $1,000,000 that remained after taxes at a 10% rate in order
to be indifferent to preserving or exploiting the resource. If this rate were unavailable, he would be
more interested in conserving, rather than exploiting, this resource.
Indeed, progressive taxation increases the relative present
value of any future income stream, and so encourages investment in the future.
Aside from the fact that it encourages investment, progressive taxation also has other beneficial effects to the people and economy. Since it is a tax by which the tax rate increases as the taxable base amount increases, it can offset inequalities in income distribution because the basis of taxation is not the income, but the object of taxation. On the economic aspect, it enables the government to collect a bigger amount of tax revenue which can be of great aid in carrying out its services to its citizens.
ReplyDeleteIn addition to the benefits of progressive tax, it helps individuals avoid incentive traps, where your income will decrease if you earn more. Taxing the income at a certain rate at a different time can allow for larger take home money and encourage investment.
ReplyDeleteA study about progressive taxation system states that this is an effective way for proper distribution of wealth, because it allows people with lower income to pay less tax. I think high income earners must just consider this as a simple help to those average earners since they are the ones who have more cash. Likewise, it’s fine because their taxes are considerably being spent on the country’s development.
ReplyDeleteThis system simply states that the more money you earn, the higher your tax rate is. Governments consider this as an efficient way to increase revenue. And like what Parris said, the money collected by the government is used mainly for development purposes. Most likely, it is invested in building more infrastructures such as schools and public transportation.
ReplyDeleteProgressive Taxation is one of the good programs of the government. It is reasonable that citizens coming from the lower income bracket pay lower taxes, while citizens that earn higher salaries pay higher taxes.
ReplyDelete