Progressive Tax Rate

It is fair that people who earn more income should pay a higher proportion of their income in tax. The tax supports the administration of their country which provides the sort of operating environment in which they are able to earn their wages in the first place. Even when paying a higher marginal rate on the top end of their earnings, they will still take home more than people who are paid less with a tax rate anything up to 100%.

Progressive taxation forms a buffer for the lowest earners in society. This is because the lowest tax band will apply to earnings beneath an initial threshold. Therefore, the less one earns, the higher percentage of one’s pay is not taxable. A certain “block” at the bottom of each income may be tax free altogether, and by definition this will form a much larger proportion of a low earner’s income than it would in the income of a high earner. This protection for the poorest is important, because most countries also operate customs tariffs and sales taxes, which tend to hit the poor more than the rich in terms of the proportion of their income going in indirect taxation; progressive direct taxation redresses the balance.

Progressive taxation encourages social cohesion. It sends out a clear policy signal that income and wealth are social means which can be used for the collective good. It also reduces the disparity in net pay and so lessens the economic divisions between different members of society.

Progressive taxation should increase the total tax take. This means that increased funds are available for spending on worthwhile socially beneficial programmes, such as education, health, environmental protection, etc.

Progressive taxation acts as a discouragement to overinflated wages. There is a decreasing marginal benefit to high, or higher, wages, since the earner will see less and less of the extra gross pay actually appearing in their net pay packet. Therefore, the upward pressure on pay will reduce and excessive remuneration will become less common.