Differentiating Tax Structures Essay

Differentiating Tax Structures Essay.

Differentiating Tax Structures Essay

Differentiating Tax Structures

Differentiating Tax Structures

Proportional taxes

This tax is in such a way that the tax rate is fixed i.e. the amount of the tax is proportional to the amount subject to taxation. In this case the tax rate does not change with achange in the level of income (Spilker, Ayers, & Robinson, 2014). There are a number of pros when it comes to proportional or flat tax rates which include simplicity and equality. Flat tax rates also ensure that there are no deductions, loopholes, as well as tax shelters. On the contrary, this taxation method is said to penalize the low-income segment of the population thus failing to satisfy the canon of equality. It is also inelastic and therefore less productive and cannot bring social justice (Nunes, 2016). Examples include per capita taxes, gross receipt taxes, and occupational taxes (Horton, 2017).

Progressive taxes

            Progressive taxes, on the other hand, are taxes where the tax rates increase as the taxable income increases. As a result, higher income earners will be subject to higher tax rates than low-income earners. Marginal taxes rates under this taxation system are in most cases higher that the average tax rates (Spilker, Ayers, & Robinson, 2014). The advantages are that they shift the tax burden to those able to pay, prevent political and social instability and government can get more revenue. Cons include brain drain where the wealthy immigrate to countries where tax rates for the wealthy is lower as well as bracket creep (Nunes, 2016). An example of the progressive taxes is the estate tax where the government places a greater burden on the wealthy (Horton, 2017).

Regressive taxes

            Under a regressive tax system, the tax rate falls/decreases as the income level increases. The low-income earners feel the tax burden more than the higher income earners. Pros include the fact that when it has abasis on consumption on sales tax, it brings about an element of freedom of choice. As such, it is said to be non-distortional. The government can also use it to discourage the consumption of a potentially harmful product and incure a tax on all tobacco products. The disadvantages of this system is that it is not equitable in nature i.e. harms the poor and also does not generate huge tax revenue (Joseph, 2011). Examples include among others are real estate property taxes, exercise taxes on consumables such as cigarette, gasoline, alcohol etc. (Horton, 2017).      


Horton, M. (2017, May 25). What are the differences between regressive, proportional and progressive taxes? Retrieved October 26, 2017, from

Joseph, C. (2011, September 18). The Pros & Cons of Regressive Taxation. Retrieved October 26, 2017, from

Nunes, G. (2016, April 21). Pros and Cons for the U.S. of Flat vs. Progressive Taxes. Retrieved October 26, 2017, from

Spilker, B. C., Ayers, B. C., & Robinson, J. R. (2014). McGraw-Hill’s Essentials of Federal Taxation. New York: McGraw-Hill Irwin.

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