Graduated Income Tax Flashcards, test questions and answers

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What is Graduated Income Tax?

A graduated income tax is a system of taxation where the amount of taxes paid rises as the taxpayer’s income increases. It is based on the principle that those with higher incomes should pay more taxes than those with lower incomes. The rate of taxation, or marginal tax rate, increases as taxable income increases for each individual or family.The primary benefit of a graduated income tax is that it can address issues of inequality in society by imposing higher taxes on those who are able to afford them and lower taxes on those who cannot. This helps to reduce economic disparities between different groups within a population and is one way to redistribute resources among citizens according to their ability to pay. Additionally, it allows governments to better fund public services such as education, healthcare, and infrastructure by collecting increased revenues from wealthier taxpayers while providing relief for lower-income taxpayers who may be struggling financially.The main disadvantage of a graduated income tax is that it can be difficult to administer and may lead to economic distortions if not implemented properly. For example, if rates are set too high or progressivity too steep it could disincentivize people from earning more money (through working longer hours or taking risks in business ventures). It can also be used by politicians for partisan advantage raising rates on certain groups for political reasons rather than sensible fiscal policy considerations. Finally, there is always the potential for abuse through loopholes or preferential treatment given certain taxpayers according to their wealth or influence which further exacerbates existing inequities in society. Overall, while a graduated income tax has its advantages and disadvantages depending on how it is implemented in practice, its ability to address inequalities between different groups within society makes it an attractive option for many governments seeking ways to increase revenue without placing an undue burden on low-income individuals and families.