Proportional tax information

A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation.^[1] "Proportional" describes a distribution effect on income or expenditure, referring to the way the rate remains consistent (does not progress from "low to high" or "high to low" as income or consumption changes), where the marginal tax rate is equal to the average tax rate.^[2]^[3]

It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Proportional taxes maintain equal tax incidence regardless of the ability-to-pay and do not shift the incidence disproportionately to those with a higher or lower economic well-being. ^[4]

Although a proportional tax is sometimes called a flat tax,^[5] flat taxes are in fact only one type of proportional tax that offer particular deductions. Therefore, they fall under the same category as proportional taxes.^[6] Flat taxes are defined as levying a fixed (“flat”) fraction of taxable income. A flat tax is a tax with a single rate on the taxable amount, after accounting for any deductions or exemptions from the tax base. It is not necessarily a fully-proportional tax. They usually exempt from taxation household income below a statutorily determined level that is a function of the type and size of the household. As a result, such a flat marginal rate is consistent with a progressive average tax rate.

A progressive tax is a tax in which the tax rate increases as the taxable base amount increases. The term “progressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.^[7]^[8]^[9] The opposite of a progressive tax is a regressive tax, where the tax rate decreases as the amount subject to taxation increases. Because there is an inverse relationship between the tax rate and the taxpayer's ability to pay as determined by assets, consumption, or income, regressive taxes place a greater burden (relative to resources) on the poor than on the rich in terms of individual income and wealth.^[10]

The French Declaration of the Rights of Man and of the Citizen of 1789 proclaims:

A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means.^[11]

^ Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), Concepts of Taxation, Dryden Press: Fort Worth, TX
^ Hyman, David M. (1990) Public Finance: A Contemporary Application of Theory to Policy, 3rd, Dryden Press: Chicago, IL
^ James, Simon (1998) A Dictionary of Taxation, Edgar Elgar Publishing Limited: Northampton, MA
^ [1]16.3: Progressive, Proportional, and Regressive Taxes. (2018, January 1). Social Sci LibreTexts.
^ [2]Kagan, J. (2021, April 26). What Is a Proportional Tax? Investopedia.
^ Cambridge Dictionary. (2024, April 24), Proportional tax.
^ Webster (4b): increasing in rate as the base increases (a progressive tax)
^ American Heritage Archived 2009-02-09 at the Wayback Machine (6). Increasing in rate as the taxable amount increases.
^ Britannica Concise Encyclopedia: Tax levied at a rate that increases as the quantity subject to taxation increases.
^ [3]16.3: Progressive, Proportional, and Regressive Taxes. (2018, January 1). Social Sci LibreTexts.
^ [4] Declaration of the Rights of Man - 1789 at Yale Law School's Avalon Project

[1] Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), Concepts of Taxation, Dryden Press: Fort Worth, TX

[Hyman-2] Hyman, David M. (1990) Public Finance: A Contemporary Application of Theory to Policy, 3rd, Dryden Press: Chicago, IL

[James-3] James, Simon (1998) A Dictionary of Taxation, Edgar Elgar Publishing Limited: Northampton, MA

[4] [1]16.3: Progressive, Proportional, and Regressive Taxes. (2018, January 1). Social Sci LibreTexts.

[5] [2]Kagan, J. (2021, April 26). What Is a Proportional Tax? Investopedia.

[6] Cambridge Dictionary. (2024, April 24), Proportional tax.

[7] Webster (4b): increasing in rate as the base increases (a progressive tax)

[8] American Heritage Archived 2009-02-09 at the Wayback Machine (6). Increasing in rate as the taxable amount increases.

[9] Britannica Concise Encyclopedia: Tax levied at a rate that increases as the quantity subject to taxation increases.

[10] [3]16.3: Progressive, Proportional, and Regressive Taxes. (2018, January 1). Social Sci LibreTexts.

[11] [4] Declaration of the Rights of Man - 1789 at Yale Law School's Avalon Project

Proportional tax information

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