System of Taxation

Topics: Progressive tax, Tax, Regressive tax Pages: 2 (718 words) Published: September 16, 2013
System of Taxation
A tax system used in the United Kingdom in which income levels are divided into different classifications for determining tax rates. Each income classification represents a different source of income such as business profits, capital gains, employment income, entitlements, that is taxed according to the specific provision of the Tax Act to which it applies.

A progressive tax is one in which the tax rate increases as the amount being taxed increases. Most western countries use a progressive tax in one way or another. A progressive tax is one of many systems governments use to raise revenue. How It Works/Example:

Federal income tax in America is considered a progressive tax. There are income tax-brackets to assure this.

As you can see, those who make the least amount of money owe the lowest marginal tax rate. The more money one makes, the higher the tax rate. This table can be a little confusing without further explanation. Please note that everyone is taxed in steps. A person earning $100,000 is not taxed 28% on the entire amount. Instead, he is taxed 10% on the first $8,350 earned, 15% for the portion up to $33,950, 25% for the portion up to $82,250, and 28% for the remainder:

This clarification is important to quell some misleading rumors. It has been suggested that if an employee earning $33,950 (take home after taxes: $28,857) is offered a $5 pay raise (enough to boost him into the next tax bracket), it will actually decrease the total amount he takes home (suggested take home after taxes: $25,466). But this is incorrect. Only the $5 above $33,950 will be taxed the higher 25%. In this case, his ACTUAL after taxes take home would be $28,861

Definition of 'Regressive Tax'
A tax that takes a larger percentage from low-income people than from high-income people. A...
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