Sociology Index

Proportional Taxation

Regressive Taxation, Progressive Taxation, Flat Tax

In between regressive taxation and progressive taxation is proportional taxation, where the tax rate is fixed as the amount subject to taxation increases. The opposite of proportional tax is fixed tax. Proportional taxation applies equally to the poor and to the wealthy.

An example of proportional taxation is ad valorem taxation on houses. Though, because the poor spend a disproportionately higher amount on housing, the ad valorem tax may seem regressive taxation, placing a relatively heavier burden on the poor. In progressive taxation the more well off are taxed at a higher rate than are the less well off.

That is, unlike proportional taxation, progressive taxation structure progressively increases the percentage of a citizen's income, or wealth, which is paid in tax as income, or wealth, increases.

Regressive Taxation structure, unlike proportional taxation or regressive taxation, requires the more well-off to pay a lower percentage of their income, or wealth, in tax than a less well-off citizen.

Welfare Effects of Proportional Taxation: Empirical Evidence from Italy, Norway and Sweden
Ugo Colombino and Steinar StrÝm Rolf Aaberge
Abstract: This paper employs a particular labor supply model to examine the welfare effects from replacing current tax systems in Italy, Norway and Sweden by proportional taxation on labor income. The results show that there are high efficiency costs for Norway and low costs for Italy and Sweden associated with the current progressive labor income taxes. However, there appears to be large variation in the distribution of welfare gains/losses. "Rich" households – defined by their pre-tax-reform income – tend to benefit more than "poor" households from replacing the current progressive tax systems by proportional taxation.

Social Goals and Consequences of the Flat Taxation or Proportional Taxation in Bulgaria
Dimitar Ninov
Abstract: The main goal of the study is to reveal and if possible measure in quantity the main permanent consequences for low, average and high income groups of the population from the introducing of the flat tax, the decreased total size of the obligatory insurance installments, the increased share in them of the personal installments, the increased amount of the minimal wage and of the maximum insurance income. The concrete reports and analyses reveal that these changes and mostly the introduction of 10 percent flat (proportional) tax since 1st January 2008 lead to drastic (unfamiliar till now) and permanent redistribution of the total tax and insurance burden from high to (to the detriment of) low and average income groups, decrease of the available monthly incomes for the low and average income groups and their increase for the high and very high income groups without necessity of increase of their gross sizes, deepening of the income differentiation and the social polarization among the population, additional encouraging of the participation of low and average income groups from the employed in the grey economy and hiding wages and other personal incomes, hurting the feeling of social justice in the distribution, redistribution and end distribution and consumption of GDP, etc.

Flat tax or flat rate tax or proportional taxation is a constant rate tax system. Flat tax refers to income being taxed at one marginal rate, in contrast with progressive taxes.