Taxes are often divided into progressive, proportional and regressive taxes, where progressive taxes charge people with higher income at a higher rate while regressive taxes charge people with a lower income at a lower rate. A proportional tax, sometimes called a flat tax, is one that's charged the same on all taxpayers regardless of their income. One common class of proportional tax is an income tax that's a fixed percentage of what you earn. Sales taxes, import tariffs and property taxes can be in any of those categories depending on how they're set up.
Progressive vs. Regressive Tax
A progressive tax by definition is one set up to charge a higher percentage of tax to higher-income people than to lower-income earners. A regressive tax has the opposite effect. The terms, commonly used by economists and political scientists, aren't intended to favor one type of tax over another.
Proportional taxes, or flat taxes, affect all taxpayers the same way. In some cases, it's argued that some proportional taxes are actually types of regressive taxes, since they still result in a disproportionate impact on poorer people since they have less room in their budgets for taxes or any other expenses.
The U.S. federal income tax is considered a progressive tax system, because taxes rise according to set tax brackets so that, for example, as of 2018, an additional dollar earned by someone making more than $500,000 will be taxed at a 37 percent rate, while someone earning under $9,525 would pay only 10 percent on that additional dollar of income. Some states with income taxes have progressive tax systems while others have proportional tax systems that tax a fixed fraction of income for all payers.
Social Security tax, which taxes only incomes up to a certain limit, is often called a regressive tax, since it takes a smaller percentage of your income the more you earn above that cutoff point.
Proportional Income Tax
Some politicians have advocated for a proportional income tax, or flat tax, for the federal income tax system. They also often argue for eliminating many of the existing credits and deductions that are involved in the federal income tax.
A flat tax is said to be easier to compute, since you can just multiply your income by a fixed percentage to know what you'll owe in tax, and fairer since a dollar earned by one person is the same as a dollar earned by any other person.
Critics say the proportional income tax disadvantages the poor and argue that rich people should pay a higher percentage of their taxes as they do now in order to pay for vital services both for themselves and those less well off.
Sales and Property Taxes
A sales tax or property tax can effectively be considered either a proportional tax or a regressive tax depending on your point of view.
On the one hand, sales taxes are applied on goods purchased regardless of income, so a rich person will pay the same sales tax on the same purchase as a poor person. But on the other hand, sales taxes effectively take a higher percentage of many poorer people's income, since they must spend a higher percentage of their income needed to live.
The same logic applies to other taxes on products, such as excise taxes on particular goods like gasoline and alcoholic beverages and import tariffs on imported goods.
Similar logic applies to state and local property taxes on real estate and other goods such as cars, since the tax is applied independently of income but may, in practice, take a higher percentage from either high earners or low earners, depending on what sorts of property each group owns.
United States Poll Taxes
At one time, some states charged a poll tax that was required to be paid by citizens in order to vote. It was generally a flat fee charged per person.
In theory, this was a proportional tax, affecting everyone equally, but in practice, it was often used to deny black people and sometimes poor white people who couldn't afford the tax, the right to vote. Poll taxes were banned in federal elections in 1964 and declared unconstitutional in other elections in 1966.
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Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.