What Is a Progressive Tax System?

The progressive tax system refers to an incremental tax rate that is graded according to the amount or relative proportion of the taxable objects, and is gradually increased, which is also called "progressive tax rate". It divides the amount of taxable objects into several levels. One level applies to a corresponding tax rate. The larger the amount of taxable objects, the higher the applicable tax rate.

Progressive taxation

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The progressive tax system refers to an incremental tax rate that is graded according to the amount or relative proportion of the taxable objects, and is gradually increased, which is also called "progressive tax rate". It divides the amount of taxable objects into several levels. One level applies to a corresponding tax rate. The larger the amount of taxable objects, the higher the applicable tax rate.

Chinese name

Progressive taxation

Nature

system

Features

Amount or relative proportion of taxable objects

Advantages

Size and grading

There is no single tax rate for progressive tax rates. It is a multi-tiered tax rate structure. Each tax rate is composed of several different tax rates, including the lowest tax rate, the highest tax rate, and several intermediate tax rates. Compared with the proportional tax rate, it can better reflect the principle of fair tax burden and affordable amount, which makes the taxpayer's burden level compatible with the tax capacity, but the calculation of its tax amount is relatively complicated. Progressive tax rates can be divided into full progressive tax rates, excess progressive tax rates, full-rate progressive tax rates, over-rate progressive tax rates, and over-progressive tax rates.

When the economy is booming, as production expands and employment increases, people s income increases, and the amount of tax levied through progressive income tax automatically increases at a faster rate. The increase in taxation at a faster rate means that people have disposable power. The increase in income is relatively small, so that the increase in consumption and aggregate demand is relatively small, and eventually the effects of expansion of aggregate demand and economic overheating are curbed. When the economy declines, the level of national output declines, and personal income and corporate profits generally decline. Under the condition that the tax rate is unchanged, the government's tax will automatically decrease, and the disposable income left to people will automatically decrease a little, so that consumption And aggregate demand also decreases less automatically, thus mitigating the economic downturn.

Under the condition that the tax rate is fixed, the tax automatically changes in the same direction with the economic cycle. This automatic change of tax is in line with the government's intention to increase taxes during economic prosperity; It is an automatic stabilization factor in the economic system that helps stabilize the economy.