Progressive tax

Progressive tax

Taxation acts as a crucial thread in the complex tapestry of fiscal policy, binding the country’s economic system together. The idea of progressive taxation, a system that has attracted both favour and criticism throughout the years, is one major thread in this tapestry. Understanding progressive taxes is crucial in the world of investments. This discussion digs into the specifics of progressive taxation in the context of investments, including its fundamental tenets, benefits, and drawbacks.  

What is progressive tax? 

Progressive tax embodies a tax system where the rate of taxation ascends as the taxable income of an individual or entity augments. In essence, the more one earns, the greater the proportion of their income contributed as tax. This taxation principle is underpinned by the concept of equity, aiming to distribute the fiscal burden proportionately across society’s economic strata. 

Understanding progressive tax 

The bedrock of a progressive tax framework is its tax brackets. These brackets delineate income segments, each with a specific tax rate. As income escalates, so does the applicable tax rate. Consider, for instance, an investment magnate whose income breaches a certain threshold; the additional earnings are subjected to a progressively higher tax rate. This incremental approach strives to curtail economic disparity while concurrently funding public services and welfare initiatives. 

Foundational principles of progressive taxation 

In the intricate tapestry of fiscal policies, the concept of progressive taxation stands as a cornerstone of economic justice. At its core lies a fundamental principle: as individuals or entities amass greater wealth, they contribute a higher proportion of their income to the communal coffers. This approach resonates with the essence of equity, a pillar of societal harmony and shared prosperity. 

The gradients of tax brackets 

The tax brackets, which are a series of income categories each allocated a certain tax rate, are essential to the system of progressive taxation. These brackets, which are sometimes referred to as bands, define income levels for which various tax rates are applicable. The appropriate tax rate rises as a person’s earnings pass through one bracket and enter another. This gradual change ensures that people who earn more also give more, reflecting the rising nature of income itself. 

Equity and economic redistribution 

The quintessence of progressive taxation lies in its quest for economic redistribution. By exacting a larger financial commitment from high earners, this system endeavours to bridge the chasm between affluence and need. It aspires to diminish the economic disparities that can afflict societies, fostering an environment where economic mobility is not impeded by financial burdens.

Advantages of a progressive tax 

The inherent fairness of progressive taxes within the investing sphere is a key benefit. This approach aims to close the income gap and promote social cohesion by attaching a higher tax rate to higher incomes. Additionally, the money made from such a model strengthens government coffers by supporting important infrastructure, healthcare, and education programmes. As a result, the economy grows faster and the investment climate is strengthened since a developed society inspires trust in investors. 

Disadvantages of a progressive tax 

Conversely, detractors argue that progressive taxation may deter diligent work and entrepreneurship, as higher-income individuals face an augmented tax burden. Critics posit that these disincentives could lead to decreased investment in sectors pivotal for economic expansion. Furthermore, navigating the labyrinthine tax brackets can be cumbersome, necessitating meticulous financial planning and administrative efforts. 

Examples of a progressive tax 

The income tax system in place in the United Kingdom is a prime example of progressive taxation. This system reflects the fundamental ideas of progression with a wide range of tax bands, from the standard rate to the supplementary rate. A person’s tax rate increases proportionally when their income moves into higher tax brackets. The socioeconomic infrastructure of the country is supported by this fiscal model, which provides money for a variety of industries including healthcare, education, and social services. 

Frequently Asked Questions

Regressive taxation works the opposite of progressive taxation, which requires higher earners to pay a larger percentage of their income in taxes. As income increases in a regressive system, the tax burden decreases. Low-income people may be disproportionately affected by this, thereby escalating economic inequality. 

Unlike progressive taxation, where tax rates increase with income, flat taxation imposes a uniform tax rate across all income levels. While flat tax systems are often perceived as simpler, critics argue that they can exacerbate income inequality by burdening lower earners more heavily. 

Tax bracket adjustments hinge on governmental fiscal policies and economic shifts. Changes can occur annually, but this is contingent on legislative decisions and economic indicators. Tax rates in the United States, for example, are updated annually on the basis of the Consumer Price Index, or CPI, although other nations may have other methods and timetables for doing so. 

A progressive tax’s primary goal is to promote an equal tax burden distribution while funding societal improvements and public services. In order to reduce income disparity and promote economic development, a balance must be struck. This approach seeks to minimise income inequality by obtaining a larger share of money from the wealthy and directing it towards public services and social programmes that help the less fortunate. Progressive taxation is viewed as a technique of ensuring a more fair distribution of the tax burden while also promoting economic stability and social harmony. 

 Yes, income taxes are viewed as progressive taxes. In a progressive tax system, the tax rate grows as income rises. This means that people with higher incomes pay a larger percentage of their tax earnings, while those with lower incomes pay a lesser percentage. The progressive character of income taxes is intended to encourage income redistribution, decrease income inequality, and guarantee that those who can pay more do so to fund government services and social programs. However, the degree of progressivity varies by country or area based on the existing tax laws and policies. 

Related Terms

    Read the Latest Market Journal

    Weekly Updates 15/4/24 – 19/4/24

    Published on Apr 15, 2024 20 

    This weekly update is designed to help you stay informed and relate economic and company...

    From $50 to $100: Unveiling the Impact of Inflation

    Published on Apr 12, 2024 99 

    In recent years, inflation has become a hot topic, evoking strong emotions as the cost...

    Japan’s Economic Resurgence: Unveiling the Tailwinds Behind Nikkei 225’s Record Leap

    Published on Apr 11, 2024 66 

    Source: eSignal, Intercontinental Exchange, Inc. In the heart of Japan’s economic landscape, the Nikkei 225...

    Weekly Updates 8/4/24 – 12/4/24

    Published on Apr 8, 2024 103 

      This weekly update is designed to help you stay informed and relate economic and...

    What Makes Forex Trading Attractive?

    Published on Apr 2, 2024 182 

    In a world where the click of a button can send goods across oceans and...

    Weekly Updates 1/4/24 – 5/4/24

    Published on Apr 1, 2024 96 

    This weekly update is designed to help you stay informed and relate economic and company...

    How to soar higher with Positive Carry!

    Published on Mar 28, 2024 129 

    As US Fed interest rates are predicted to rise 6 times this year, it’s best...

    Why 2024 Offers A Small Window of Opportunity and How to Position Yourself to Capture It

    Published on Mar 28, 2024 177 

    With the Federal Reserve (FED) finally indicating rate cuts in 2024, we witnessed a significant...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066