Progressive taxation involves an increase in the effective rate with an increase in the base. As a rule, this mode is used for individuals. Let us consider further what a progressive tax scale can be .
Historical reference
Progressive tax is a deduction that has come into practice due to pressure from farmers and the working class. For many decades, a struggle has been waged, in which one or the other side won alternately. During this time, various attempts were made to implement reforms in the forms of taxation. As a result of the complex of social and economic factors, a new scheme was developed. Progressive taxation was first used in Great Britain in 1798. It started from 2 pence / pound for income of more than 60 pounds and increased to 2 shillings for profit of more than 200 pounds. After almost a hundred years, reform was carried out in Prussia. The tax in the country began from 0.62% and increased to 4%. By the beginning of the 20th century, the scheme began to be used in most European countries. In 1913, it began to be used in the United States.
Using the scheme in Russia
The first attempt to introduce a progressive taxation was made in the country in 1810. This was due to the depletion of the economy by the war with Napoleon. As a result, the paper ruble rate plummeted. The progressive tax system assumed an initial rate of 500 rubles, which gradually increased to 10% of net profit. After the war, revenues to the state treasury began to decline. In 1820, the progressive income tax was abolished. In 1916, this regime was established again by the tsarist government. The adopted decree was to take effect in 1917. However, this was prevented by the revolution. After the overthrow of the tsarist government, various decrees were issued for several years, aimed at supplementing and developing the Tax Regulation. But only in 1922 a reform was carried out.
Simple Bitwise Progressive Tax
This is the most common scheme that was used in many countries at the initial stage of reform. The base in this case is divided into categories. Each of them corresponds to a certain lower and higher limit of profit, as well as a specific fixed amount. One of the drawbacks that a simple progressive tax has is a spasmodic change in payment at the discharge boundary. Two profits, not very different from each other, but falling on opposite sides of the same limit, suggest a significant difference in the amount of deductions. For example, with a total income of 1000 p. the tax will be 31 p., and at 1001 p. - already 45 p. Another disadvantage is the fact that a person who has received a large profit will have less money on hand than someone who received a lower one.
Relative bitmap
Such a progressive tax is similar to the modes described above. Discharges are also used here. Each of them is assigned a specific percentage rate. It applies to the entire database. In this case, proportional taxation is used inside the discharge. But when you move to the next level of profit, a jump occurs (the same as provided for by a simple progressive tax). This leads to the fact that, as in the previous version, the subject with the greatest profit will have less money than the one whose income is lower.
Single stage
This type of progression involves only one bet. In addition, a limit is used below which profit is not taxed, and above - a mandatory payment is provided regardless of the subsequent increase. The bet itself is fixed (not progressive). However, taking into account the established limit, there is an increase with profit growth. The effective rate reflects the actual rate of taxation that applies to the property.
Multi-stage circuit
In such taxation, income is divided into parts. At each subsequent stage, the rate increases with an increase in profit. Their number can be either minimal (2 or 3) or maximum (18, as in Luxembourg). A feature of such a scheme is that in the separation process, the rate is applied not to all profits in the aggregate, but only to a part exceeding its lower border. The final payment is calculated as the sum of all taxes for each step. In this scheme, there is also a real increase in the effective rate with increasing profits. At the same time, the tariff curve is characterized by a small undulation, decreasing along the increase in the number of steps.
Advantages and disadvantages of the regime
The introduction of a progressive tax in a multi-stage scheme allows:
- Present the entire model in the form of a simple table.
- Perform simple calculations to determine the amount of payment.
- Change rates at each stage separately, for each specific group of payers.
- Index the profit level for which the rate is 0%.
Among the minuses of this system, experts note the complexity in comparison with the proportional calculation scheme. In addition, in the case of indexation of the level of profit, including not falling under taxation, it is necessary to increase the rate and expand the limits for the steps. This is required to avoid a drop in collection.
Linear circuit
In this case, the rate increase occurs without jumps. Due to its uniform increase, the effective tariff also grows gradually. Typically, in linear and multi-stage schemes, the maximum bid is several times higher than the initial bid. This leads to a slower increase in the effective tariff in the area of low profit than it does with a single-stage system.
Conclusion
It should be said that taxation is not only a financial and economic phenomenon. It is also considered as a political tool. In this connection, one or other class interests are reflected in approaches to its establishment. The proportional scheme is much more easily accepted by wealthy entities, since it reduces the burden as the object grows. A progressive system affects their interests more strongly. That is why wealthy categories always oppose its application. Today, the choice of a progressive system is based primarily on discretionary income, that is, profit, which is used at one’s own discretion. In theory, it is defined as the difference between total revenues and those that are spent to meet priority needs. Thus, discretionary income reflects the true solvency of entities. With increasing profits, the share of vital costs decreases. As a result, discretionary income increases.