Income Tax Theories - Progressive or Regressive - Who pays what?

One of the 'Canons of taxation' developed by Adam Smith said that a tax should be linked to 'ability to pay'. Income tax clearly ties in with this because, as we can see from the explanation of income tax, the higher a person's taxable income, the greater the rate they pay. This means that income tax is progressive. In other words, the more people earn, the greater the proportion of their income they pay in tax.

A regressive tax, on the other hand, is a tax where the more people earn the less the tax represents as a proportion of their income. In other words, regressive taxes will hit less-well-off people harder than the better-off. The full definitions are:

Progressive tax - a tax that represents a greater proportion of a person's income as their income rises. In other words, the average rate of taxation rises.

Regressive tax - a tax that represents a smaller proportion of a person's income as their income rises. In other words, the average rate of taxation falls.

Proportional tax - a tax where the percentage of income paid in taxation always stays the same. In other words, the average rate of taxation is constant.

The balance of these taxes can have a significant effect on income distribution in an economy. If a government chooses to switch the balance of taxation from progressive to regressive taxes then the less-well-off in society will be harder hit.