Progressive Tax & Regressive Tax


Taxation is essential for any modern economy. It is a major source of income for the government. There are multiple ways taxation is categorized into. Progressive Taxation and Regressive taxation are two of such categories one the basis of progressivity. Progressive taxation and Regressive Taxation exhibit contrasting characteristics and impact taxpayers in completely different manner. Some of the basic differences between progressive and regressive taxation are presented below.

Difference Between Progressive Taxation and Regressive Taxation

BasisProgressive TaxationRegressive Taxation
StructureIn this taxation, the tax rate increases  with a rise in income.In this structure, the tax rate decreases with the decrease in income.
Income DistributionThis taxation contributes to reduction in income inequality as it imposes higher tax burden on high-income.This taxation may contribute to income inequality as it imposes a high tax burden to low-income individuals or entities.
Tax LiabilityHigh income individuals and entities have higher tax liability due to higher tax rates.Low income individuals and entities have higher tax liability due to relatively higher tax rates.
EquitableProgressive taxation is relatively fair as it imposes tax based on the ability to pay.Regressive taxation is comparatively less equitable as it imposes high tax to low income individuals or entities.
BenefitsProgressive taxation is beneficial to low-income groups.The regression taxation is beneficial to high-income groups.
Impact on IncomeThis taxation has a higher impact on disposable income as high tax is imposed on high income.The taxation has comparatively lower impact on disposable income as higher tax is imposed on lower income individuals or businesses.
Government RevenueHigher government revenue as high taxation is imposed on high income. Comparatively lower government revenue as the tax burden is imposed on low disposable income individuals or entities.
AssociationProgressive taxation is associated with direct taxes.Regressive Taxation is associated with indirect taxes.
ExamplesTax on investment income and real estate are in progressive formSales tax, gas tax and payroll tax are examples of regressive tax.



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