Answer to Question #148763 in Macroeconomics for Janelle Casanova

Question

How does a progressive income tax system affect businesses in the US?

Answer 1

Answer to question #148763

It can be defined as a system where the taxation rate increases as the taxable income increases and the opposite is true. Progressive tax impacts on business in the US by increasing their marginal tax rate compared to their average tax rate. The US has both federal and state level taxing system which are independent and by implementing a progressive tax system, it means that the amount of taxes to be paid by businesses will increase. Progressive tax enhances equal income distribution among businesses, reduced economic and finance volatility and enhances growth of small businesses. Even though progressive tax leads to increased revenues to the authority, it may impact negatively on business since it will discourage thriving of businesses due the fact that the more revenues you generate, the more taxes you pay.

REFERENCES

Sommerfeld, R. M. (1993). Concepts of taxation. Fort Worth: Dryden Press.

Hyman, D. M. (1990) Public Finance: A Contemporary Application of Theory to Policy, 3rd, Dryden Press: Chicago, IL