Answer to Question #18016 in Economics of Enterprise for mee
Designed to collect a greater proportion of tax revenue from wealthy people,
progressive taxes reflect the view that those who are able to pay more should
carry a heavier share of the tax burden. Progressive incometaxes may provide for exemption from tax liability for incomes under a specified amount, or they may establish
progressively greater rates for larger and larger incomes. The presence of
deductions can also make a tax progressive. Progressive taxes are a stabilizing
force in periods of inflation or recession because the amount of tax revenue changes more than proportionately with an increase or decrease in income. For
example, in an inflationary economy, as prices and incomes rise, a greater
percentage of taxpayers' income goes toward taxes. Government revenues
increase, and the government has more leverage over the economy. A side effect
of this system is that lower-income taxpayers have an especially difficult time
making ends meet when inflation is high. To compensate, many economists
advocate indexation; several countries adjust their tax rates annually in times of inflation, usually in line with the consumerprice index.
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