ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition: Progressive tax is the taxing mechanism in which the taxing authority charges more taxes as the income of the taxpayer increases. A higher tax is collected from the taxpayers who earn more and lower taxes from taxpayers earning less. The government uses a progressive tax mechanism.

Detailed explanation-2: -A progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low-and middle-income taxpayers shoulder a relatively small tax burden.

Detailed explanation-3: -A progressive tax is characterized by a more than proportional rise in the tax liability relative to the increase in income, and a regressive tax is characterized by a less than proportional rise in the relative burden.

Detailed explanation-4: -By increasing or decreasing taxes, the government affects households’ level of disposable income (after-tax income). A tax increase will decrease disposable income, because it takes money out of households. A tax decrease will increase disposable income, because it leaves households with more money.

Detailed explanation-5: -Progressive taxation has a direct impact on reducing income inequality. Our taxation rates, however, must be based on our own realities.