Which Tax System is Suitable- Proportional or Progressive

Which Tax System is Suitable- Proportional or Progressive:

Various theories of taxation almost led to the conclusion that progressive taxation is more equitable than proportional taxation. The principle of progression has found much popular favor in practically all modern democratic countries. But there are also advocates of proportional taxation.

McCulloch remarks, “Where you abandon the plain principles (of proportion) you are at sea without rudder and compass and there is no amount of injustice you may not commit.” J. .S. Mill, the well-known staunch advocate of proportional taxation observes that “a graduated income tax was an entirely unjust mode of taxation and in fact, a graduated robbery.” According to him, progressive taxation was a step toward confiscation.

Now, there is one important question still, remains to be discussed, and that is which tax rate structure is to be followed as the basis of taxation. The answer would be, we should select the method of taxation which may distribute the burden of taxation equitably or according to the ability to pay. However, regressive and degressive taxation are not accepted by economics as a method of taxation for reasons of equity. But there has been a controversy over proportional and progressive taxation.

(1) Arguments in Favor of Proportional Taxation.
(2) Objections to Proportional Taxation.
(3) Arguments in Favor of Progressive Taxation.
(4) Objections to Progressive Taxation.

Conclusion: We may thus conclude that taxation for revenue purposes should, for reasons of fairness among the taxpayers, be at progressive rates. But as Taylor points out, for purposes other than revenue, this conclusion may not hold good, such as, for control purposes, i.e., the control of consumption of certain goods or for the control of cyclical fluctuations. For these reasons, all taxes cannot be imposed at progressive rates. Otherwise, the principle of progressive taxation is now generally accepted because of its productivity, elasticity, equity, and its usefulness as an instrument for bringing about equitable distribution of wealth and incomes. As far as fairness is concerned, progressive taxation has all the advantages over others. Nevertheless, there is always scope for the system of taxation.

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