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How does a Progressive Tax System work can a Progressive Tax

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mikecartwright
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17 Nov 2012, 11:29 pm

How does a Progressive Tax System work can a Progressive Tax makes the Rich People or the Wealthy poor poorer or pay all their money to takes let's say there was a 90% tax rate on the top 1% of the wealthy tax payers would the wealthy have to pay 90% of their income or wealth in taxes or does does the 90% tax rate not apply to all of the rich person's income ?



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17 Nov 2012, 11:39 pm

Holy crap dude, punctuation!

Now that I got that out of the way, I'll see if I can answer what I think your asking:

A progressive tax system works by charging more tax on people who make more money. Simple. Say a system has three brackets arranged as such:

1: 0-8500 a year, 0 tax.

2: 8501-35000 a year, 10% tax

3: 35001+, 20% tax.

Say you make 35790 dollars next year, your income tax will be 20% of that (7158 dollars). Say you lose your job next year, and end up making 10000 dollars in the time you did work, your now in the second bracket and so only pay 10% in taxes (1000 dollars). The next year, your still out of work and only make 500 dollars from bank interest, your now in the first bracket and pay no income tax. That's progressive taxation in its most basic form.


If the top tax rate was 90%, then the top 1% would have to pay 90% unless there is a loophole (of which there are many) or they take a series of deductions (like charitable donations or some such).


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mikecartwright
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18 Nov 2012, 1:53 am

Please reply.



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18 Nov 2012, 3:18 pm

abacacus wrote:
Holy crap dude, punctuation!

Now that I got that out of the way, I'll see if I can answer what I think your asking:

A progressive tax system works by charging more tax on people who make more money. Simple. Say a system has three brackets arranged as such:

1: 0-8500 a year, 0 tax.

2: 8501-35000 a year, 10% tax

3: 35001+, 20% tax.

Say you make 35790 dollars next year, your income tax will be 20% of that (7158 dollars). Say you lose your job next year, and end up making 10000 dollars in the time you did work, your now in the second bracket and so only pay 10% in taxes (1000 dollars). The next year, your still out of work and only make 500 dollars from bank interest, your now in the first bracket and pay no income tax. That's progressive taxation in its most basic form.

This isn't how most tax systems work. In the UK, for example, if those were our tax brackets then someone earning £10,000 would pay £150 in tax- his earnings, subtract £8500 (which everyone gets tax free), and then 10% of what remains (£1500).

In the case of the person who earns £35790, they would pay 20% of £790, then 10% of £26500. Otherwise someone who earned £35000 per year would take home a lot more than someone who earned £35001 (£31500 versus about £28000), which makes no sense and would deter people from seeking higher wages.

It's slightly more complicated than that, because over a certain amount you lose the tax-free amount, but we won't go there...



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18 Nov 2012, 3:22 pm

The_Walrus wrote:
abacacus wrote:
Holy crap dude, punctuation!

Now that I got that out of the way, I'll see if I can answer what I think your asking:

A progressive tax system works by charging more tax on people who make more money. Simple. Say a system has three brackets arranged as such:

1: 0-8500 a year, 0 tax.

2: 8501-35000 a year, 10% tax

3: 35001+, 20% tax.

Say you make 35790 dollars next year, your income tax will be 20% of that (7158 dollars). Say you lose your job next year, and end up making 10000 dollars in the time you did work, your now in the second bracket and so only pay 10% in taxes (1000 dollars). The next year, your still out of work and only make 500 dollars from bank interest, your now in the first bracket and pay no income tax. That's progressive taxation in its most basic form.

This isn't how most tax systems work. In the UK, for example, if those were our tax brackets then someone earning £10,000 would pay £150 in tax- his earnings, subtract £8500 (which everyone gets tax free), and then 10% of what remains (£1500).

In the case of the person who earns £35790, they would pay 20% of £790, then 10% of £26500. Otherwise someone who earned £35000 per year would take home a lot more than someone who earned £35001 (£31500 versus about £28000), which makes no sense and would deter people from seeking higher wages.

It's slightly more complicated than that, because over a certain amount you lose the tax-free amount, but we won't go there...


I understand that, I was just using a basic example (and what I posted is pretty much as simple as it gets, and shows the general idea).


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18 Nov 2012, 3:25 pm

I was mostly clarifying for Mike Cartwright.



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18 Nov 2012, 3:25 pm

abacacus wrote:

I understand that, I was just using a basic example (and what I posted is pretty much as simple as it gets, and shows the general idea).


As long as folks on the very low end of the income scale get a break, the system can work.

A totally flat rate from top to bottom not only will not work, it is basically unfair and unjust to the people who can least defend themselves.

ruveyn



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18 Nov 2012, 3:27 pm

ruveyn wrote:
abacacus wrote:

I understand that, I was just using a basic example (and what I posted is pretty much as simple as it gets, and shows the general idea).


As long as folks on the very low end of the income scale get a break, the system can work.

A totally flat rate from top to bottom not only will not work, it is basically unfair and unjust to the people who can least defend themselves.

ruveyn


Indeed. A two tier system could work, but only if you removed the multitude of loopholes and deductions.


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19 Nov 2012, 8:06 pm

How does a progressive tax system work? It doesn't. It's just more nonsense that the liberals use to brainwash the population into voting for them. Think Obamaphone.

actually, I suppose Robin Hood would be a better example. What's often forgotten is that Robin Hood, like most liberals, was a criminal.



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19 Nov 2012, 9:03 pm

Jeff1981 wrote:
How does a progressive tax system work? It doesn't. It's just more nonsense that the liberals use to brainwash the population into voting for them. Think Obamaphone.

actually, I suppose Robin Hood would be a better example. What's often forgotten is that Robin Hood, like most liberals, was a criminal.

:roll: Stop projecting.



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19 Nov 2012, 9:14 pm

If the rich voluntarily give up their wealth then Robin Hood is not a criminal but rather a Saint.



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19 Nov 2012, 9:59 pm

Forget income tax and just go with a federal sales tax and be done with it.


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20 Nov 2012, 4:46 am

Raptor wrote:
Forget income tax and just go with a federal sales tax and be done with it.


Sales tax only is a terrible idea, because it means that the wealthiest people pay a lower percentage of tax than the poor. Since poor people have to spend almost all their money on goods and services to get by, their effective tax rate will be almost equal to the sales tax rate. Wealthy people only spend part of their money and save/invest the rest. Typically the percentage of income spent goes down as income goes up. If there is only a sales tax, the effective tax rate will go down as income goes up.



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20 Nov 2012, 8:05 pm

androbot2084 wrote:
If the rich voluntarily give up their wealth then Robin Hood is not a criminal but rather a Saint.


Now that's an interesting concept. Of course, the fact that I'm sitting here considering the Criminality of the actions of a person who never existed suggest I might need to find something useful to do..... oh well. It's kinda fun to think about, actually.



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20 Nov 2012, 8:09 pm

Raptor wrote:
Forget income tax and just go with a federal sales tax and be done with it.


That would have to be a value added tax to produce sufficient revenue.

ruveyn



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20 Nov 2012, 8:15 pm

a two tier system isnt enough. If i had my way, the bottom rung of low earners would pay nothing at all. It should be more like a 3 or 4 tier system with the poorest paying nothing at all, the middle class paying 20 percent and the wealthiest paying 40% with something like an additional 5% for every £100 000 a year they earn after that.

The top earners get away with not paying what they are comfortably capable of affording. It isn't right. Even the richest have to use public services if they want the attention of the ambulance, police or fire service.