Question

What are the two basic tax administration systems? Do they refer to tax neutrality and tax equity? If so, compared to those two tax systems, list some advantages or samples for the one that you think is better.

Answer 1

Two basic tax administration systems are:

1. Regressive

2. Progressive.

A regressive tax system means when there are low-income individuals pay a higher amount of their incomes in taxes compared to high-income earners because the government assesses a tax as a percentage of the value of the asset that a taxpayer purchases or owns.

A progressive tax system are based on taxable amount of an individual's income. The follow an accelerating schedule, so high income earners pays more tax than low income earners. Tax rate, along with tax liability, increases as an individual's wealth increases.

This refers to tax equity.

Advantages: Tax progressive is the standard dedcution that lets individuals avoid paying taxes on the first portion of income they earn each year. The amount of standard deduction changes from year to year. Taxpayers can elect to itemize deductions instead if this options resuots in a greater overall deduction.