Chapter 16.4, Problem 3R

To determine

To ascertain the reasons and three forms of taxations that would likely to bring in the most funds for the government.

Explanation of Solution

The following are the three main types of taxation , these define forms in which the individual or community being taxed is subject to a tax.

Progressive taxes

It is a form of taxation where you pay higher average rates, because you have more revenue that is subject to tax. It applies mainly to income taxes. The word "progressive" comes from the fact that the tax rate becomes increasingly higher as taxable income increases.

Regressive taxes

That is a form of taxation where the overall tax rate is lower, because you have more that is subject to tax. The social security levy, a type of payroll tax is a regressive tax..

Proportional and flat taxes

A proportional tax is one which is equal to how much you have. Often you'll hear people call this a flat tax. Suppose , for example, that you live in a state with 5 per cent flat income tax. Each taxpayer pays 5 per cent of their taxable income. It is a proportional tax, because each pays a equal sum of their income.

So, progressive taxation forms can will likely to contribute more funds to the government because it is often been justified on the basis of the ability to pay principle.

Economics Concept Introduction

Introduction: