Features

• Progressive taxation usually applies to income taxes. A progressive tax system sets graduated tax rates at different income brackets. The higher a person's income rises, the higher their tax rate. When a person's income rises high enough to push them into a higher bracket, they pay a greater proportion of their income in taxes. For example, if the government taxes incomes below $50,000 a year at 20 percent and incomes above $50,000 at 30 percent, a taxpayer who earns $50,000 a year would pay $10,000 in taxes. A person who makes $100,000 a year, meanwhile, would pay $30,000 in taxes.
  
  

History

• Economists of varying ideologies have advocated progressive taxation. Scottish economist Adam Smith, in his 1776 book "The Wealth of Nations," wrote that some forms of taxation should fall more heavily on the rich. Karl Marx, who believed capitalism would one day collapse and be replaced by socialism or communism, also advocated progressive taxes on incomes.
  
  

Effects

• Opponents of progressive taxes claim the system acts as a disincentive to work longer and earn more money because higher marginal tax rates on additional income leave a person with less money than he would have had if he had not earned more. Using the example of taxing incomes of $50,000 a year or less at 20 percent and incomes above $50,000 at 30 percent, a taxpayer who earns $50,000 a year would pay $10,000 in taxes, leaving $40,000. If that person earned $51,000 next year, he would owe 30 percent, or $15,300, leaving him $35,700, more than $4,000 a year less than he would have had if he had not earned the extra $1,000 a year. Some opponents of progressive taxation, such as the Cato Institute in Washington, D.C., advocate replacing the system with a flat tax that levies a single tax rate on all income.
  
  

Considerations

• Progressive taxes are not limited to income taxes in which rates increase with a person's income. Consumption taxes can be made more progressive based on the items they tax. In 1990, the United States Congress sought to increase taxes on the wealthiest Americans by assessing a so-called "luxury tax" on items typically purchased by wealthy taxpayers, such as luxury cars, expensive jewelry, private airplanes and yachts. Rather than generating additional tax revenue with which to reduce the nation's budget deficit, sales of these items declined. The burden of the tax fell more on the people who produce luxury items than on the wealthy who purchase them. Congress repealed the luxury tax in 1993.