What is the difference between progressive, regressive, and proportional taxation?

Progressive, regressive, and proportional taxation are three different approaches to levying taxes, each with its own characteristics and implications.

Progressive taxation refers to a system where the tax rate increases as the taxable income or wealth of an individual or entity increases. In other words, the higher the income or wealth, the higher the tax rate. This approach aims to achieve a more equitable distribution of the tax burden, as it places a heavier burden on those with higher incomes or wealth. Progressive taxation is often used to address income inequality and promote social justice. Examples of progressive taxes include income taxes and estate taxes.

Regressive taxation, on the other hand, is a system where the tax rate decreases as the taxable income or wealth of an individual or entity increases. In this case, the burden of taxation falls disproportionately on those with lower incomes or wealth. Regressive taxation tends to exacerbate income inequality, as it places a heavier burden on lower-income individuals and households. Examples of regressive taxes include sales taxes and excise taxes, as they tend to affect lower-income individuals more significantly than higher-income individuals.

Proportional taxation, also known as a flat tax, is a system where the tax rate remains constant regardless of the taxable income or wealth of an individual or entity. Under this approach, everyone pays the same percentage of their income or wealth in taxes. Proportional taxation aims to treat all individuals equally in terms of their tax burden. However, critics argue that it may not be as fair as it seems, as it can still disproportionately affect lower-income individuals who may struggle to meet their basic needs. Examples of proportional taxes include some property taxes and certain types of consumption taxes.

In summary, progressive taxation increases the tax rate as income or wealth increases, regressive taxation decreases the tax rate as income or wealth increases, and proportional taxation maintains a constant tax rate regardless of income or wealth. Each approach has its own implications for income distribution and fairness, and governments often use a combination of these approaches to achieve their fiscal policy objectives.