What is the reason for using progressive taxes on income?
a. Higher-income individuals are more likely to spend their income on consumption of goods, and paying more taxes discourages spending.
b. Individuals of all incomes pay the same percentage of their income toward the tax, making it a fair tax.
c. Higher-income individuals are more likely to afford their standard of living and can afford to pay more in taxes.
d. Lower-income individuals have a lower cost of living and can afford to pay more in taxes.
c. Higher-income individuals are more likely to afford their standard of living and can afford to pay more in taxes.
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The reason for using progressive taxes on income is primarily option (c). Progressive taxes are designed to take a larger percentage of income from higher-income individuals because they are generally more well-off and can afford to contribute more towards public services, infrastructure, and the overall functioning of society. This principle is based on the concept of ability-to-pay, where those who earn more are considered to have a greater ability to shoulder the burden of taxes.
Progressive taxes are seen as a way to promote fairness and equity in the tax system. By implementing higher tax rates on higher incomes, it helps to redistribute wealth and reduce income inequalities. This approach acknowledges that individuals with higher incomes are more likely to afford their standard of living even after paying higher taxes, while taxing lower-income individuals less heavily due to their lower ability to pay.
Options (a) and (d) are not the primary reasons for using progressive taxes. While it is true that higher-income individuals may have more disposable income to spend, and that lower-income individuals may have lower living costs, these factors alone are not the main rationale for implementing progressive taxes. Similarly, option (b) refers to a flat tax, where everyone pays the same percentage of their income, and is not related to progressive taxation.