Copyright

Tax Structures: Types & Concept

Tax Structures: Types & Concept
Coming up next: What Are Tariffs? - Overview

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:02 Types of Tax Structures
  • 0:17 Regressive Tax Structure
  • 1:03 Progressive Tax Structure
  • 1:28 Proportional Tax Structure
  • 2:28 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Shawn Grimsley
Governments can use different tax structures to collect revenue. In this lesson, you'll learn about three major tax structures that governments employ. You'll also have a chance to reinforce your knowledge with a short quiz.

Types of Tax Structures

There are three general ways that a government can apply tax rates. Taxes can be levied on a regressive basis, a progressive basis or proportional basis. Let's take a closer look at each of these tax structures.

Regressive Tax Structure

A regressive tax structure results in low-income individuals paying a higher percentage of their income on taxes than high-income individuals. A regressive tax structure tends to shift the burden of taxation to the poor.

How a government defines the income subject to a particular tax rate or schedule is also important. For example, the United States government treats earned income differently than investment income and gives investment income a preferential tax rate. In other words, the government imposes a higher rate of tax on income earned through wages and salary than on income earned on investments. That's why Warren Buffet pays a lower rate of income tax than the average American household - most of his income is from investment activities, not from his labor.

Progressive Tax Structure

A progressive tax structure is the opposite of a regressive tax structure. In a progressive tax system, taxpayers making more money pay higher tax rates than those making less money. The United States uses a progressive income tax structure because it taxes earned income at progressively higher rates as earned income increases. A progressive tax structure tends to shift the burden of taxation to the wealthy.

Proportional Tax Structure

In a proportional tax structure, the tax rate does not depend upon the relative income level of the taxpayer. You can think of a proportional tax rate as a flat tax. A common example of a flat tax in the United States is a sales tax. The poorest member of society pays the same sales tax on a television as the richest. A proportional tax system theoretically should create an equal tax burden for all taxpayers, but some argue it doesn't.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support