Proportional Tax: Merits and Demerits
A proportionate tax is an income tax system in which everyone, regardless of income, pays the same percentage tax. Low, middle, and high-income taxpayers all face the same proportional tax . Flat taxes are a term that is used to describe proportional taxes. A progressive or marginal tax system, on the other hand, adjusts tax rates as income rises. Tax rates are lower for low-income earners than for high-income ones. Proportional Taxes as an Example All taxpayers under a proportionate tax system must pay the same percentage of their income in taxes. If the rate is set at 20%, a taxpayer earning $10,000 will pay $2,000, while a taxpayer making $50,000 will pay $10,000. Similarly, a millionaire would pay $200,000 in taxes. Proponents of proportional taxes argue that they boost the economy by encouraging people to work more because there is no penalty for earning more money. They also believe that a flat tax structure will encourage firms to spend and invest more, resulting in more mone