econEssay

econEssay - Individual Income Tax: Progressive/...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Individual Income Tax: Progressive/ Proportional. A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. The term "consumption tax" refers to a system whose tax base is consumption (as opposed to income or labour). While this can be structured like a sales tax, realistic proposals for a consumption tax recognize that regressivity is a problem with pure sales taxes. Using exemptions, graduated rates, deductions or rebates, a consumption tax can be made progressive, while allowing savings to accumulate tax-free. The system is not free. Regardless of political philosophy, the fact remains that a government needs money to operate, and will have to get it from another source. The upside of the consumption tax is that, because it promotes savings, the tax will encourage capital formation, which will increase productivity and economic activity. Secondly, the tax base will be larger because all consumption will be taxed. Value added tax (VAT), or goods and services tax (GST), is tax on exchanges. It is levied
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/21/2009 for the course ECON 110 taught by Professor Donaldbrown during the Fall '06 term at Yale.

Ask a homework question - tutors are online