The economy operates with the application of various tax schemes. The progressive scheme imposes more burden on the rich compared to the poor, the regressive one imposes more burden on the poor compared to the rich, and the flat rate scheme allows for the same tax rate to all the corporate entities. Fairness is always a matter of concern, and the paper seeks to determine the fair tax rate scheme that should be applied to enhance equality between the rich and the poor.
The progressive tax imposes tax rate that is lower towards those who earn low income and a higher price on those with higher income in society. The incremental scheme is mainly based on the ability of the taxpayers to pay the taxes. The approach allows those with lower income to spend on their daily requirements hence maintaining their standard of living. Additionally, those with higher incomes are taxed more, and the funds used on development projects can be utilized by all people in society (Bakis & Kaymak, 2012). The scheme, therefore, enhances equity in society.
According to the conservative tax approach, the tax amount decreases as the income of individuals increases (Simula & Trannoy, 2010). The approach tends to impose a more significant tax burden on the poor while imposing a lower burden on the rich. The implication is that the rich are less burden compared to the poor. The rich, therefore, become wealthier and invest more in the society hence creating more employment opportunities for the poor. An ideal example of a regressive tax is the sales value-added tax imposed on goods (Lockwood & Taubinsky, 2017). In essence, the regressive tax is not fair when it comes to handling the rich and the poor in society. The flat tax rate is generally applied to the income of corporate organizations, and it remains the same for all the taxpayers regardless of their income. The scheme ensures equity, and others can earn more and still pay tax at the same rate. However, other proponents argue that those earning low income utilize the same price as those with higher income hence terming the scheme unfair towards the low-income earners (Simula & Trannoy, 2010).
In conclusion, the economy operates with all three tax rates to ensure economic growth. The progressive tax is the fairest scheme as the tax rate increases with the increase in income of an individual. A progressive tax is applied to individual income earners, while regressive tax is applied mainly on commodities such as fuel. On the other hand, a flat rate is meant for the corporations' income and used for other development purposes in the economy.
Bakis, O., & Kaymak, B. (2012). On the optimality of progressive income redistribution. https://papyrus.bib.umontreal.ca/xmlui/handle/1866/8855
Lockwood, B. B., & Taubinsky, D. (2017). Regressive sin taxes (No. w23085). National Bureau of Economic Research. https://www.nber.org/papers/w23085
Simula, L., & Trannoy, A. (2010). Optimal income tax under the threat of migration by top-income earners. Journal of Public Economics, 94(1-2), 163-173.
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