TAX PROGRESSIVENESS - PROS AND CONS DEBATES.
Originating in the first of the 4 imperative rules (canons) on the settlement and collection of taxes, enunciated by Adam Smith in his famous work The Wealth of Nations (1776), the progressiveness of taxation is today a difficult subject to be dissected both in terms of measurement methods and how they can influence the economic decisions of individuals.
According to the renowned economist "The citizens of any country should contribute to support the state as much as possible in proportion to their capacities, i.e. proportionally to the revenue which they possess under state protection" arguing that "it is not very unreasonable for the rich to contribute to public costs, not only proportionally to their revenue, but even more than proportionally."[N. Hoanta 2010]
In this paper, we will focus the debate on issues that, although comprehensively analyzed over time, still remain highly controversial and without clear answers, such as: What is the most appropriate criterion which should be used to determine tax burden? When do we consider that a tax is progressive? How can the progressiveness of the tax structure be measured? Which of the two ways to place the tax proportional or progressive - is closer to fiscal equity requirements? Does progressive taxation allow a more efficient redistribution of income in society? Does tax progressiveness influence the job offer of the human factor?
2. The benefit principle versus the ability-to-pay principle
Given that the tax is a form of collecting a portion of the income and/or wealth of the taxpayers in order to provide the resources necessary to fund the activities conducted by the state, the question is to determine the amount which each taxpayer owes. Establishing tax debt can, at least theoretically, be based on the benefit obtained by a taxpayer on account of public goods and services, either on their possibility (ability) to pay it.
The benefit criterion focuses on public expenditure, i.e. determining the amount of the tax according to the public utilities functions used by every taxpayer, individually or together with their family. The tax is thus seen as the price paid for the public goods and services "purchased" by each individual. This principle excludes the social role of the state and thus any redistribution through taxes. Moreover, in such optics, if all taxpayers were able to pay, considering the obvious assumption that the unit price of those public goods could be set in place (this is one of the criticisms made of this principle, namely that it measures what cannot be measured, for example the service brought to the taxpayer by military expenses) for the goods and services purchased from the state and each would pay just enough to meet their needs, so the very notion of state would be called into question because in such conditions, there will be enough bidders, including the private area to provide such goods and services. In addition, based on a personal assessment of the public goods and services, this criterion is doomed from the start, given that the desire to not contribute to their funding, enough taxpayers will undervalue the public goods and services.
In reality, not all individuals have the ability to pay for all the goods and services required by their very existence and therefore I believe that the existence of the contemporary state is justified and of the tax used as a means of income redistribution. From this perspective, linking the tax burden to the achieved benefit is incompatible with social justice as the main beneficiaries of public services (those who most need them) are exactly those who cannot afford them (the elderly, the unemployed, etc.).
Despite all criticism, most of the citizens in a democratic society will not tolerate, on the long term, a tax system from which they will not have any benefit, which is the main argument in support of this principle.
If the ability to pay is taken into account, a problem arises in determining it. The tax practice has embraced the idea of its measurement proportionally to the income obtained, although, in some opinions, it could be equally plausible, but more difficult to quantify, the measurement of the ability to pay based on the income earned by an individual, considering the possibilities, their intellectual, physical capacities and not only. Such opinion might gain meaning given that some individuals diminish their efforts to generate revenue and therefore, besides the fact that they support a reduced tax burden, they also enjoy the same public goods and services as the taxpayers whose work efforts are significantly higher (to note that a feature of public goods is that they are equally and concomitantly used by all the members of the society regardless of the effort they have made to their funding). Establishing the income based on the achieved income excludes that the welfare of an individual is measured only based on it as free time is an important element, maybe as important as the welfare of an individual. From this perspective, tax progressiveness sensitively alienates from ensuring a certain social justice (fairness) through taxation. However, in practice it is very difficult, if not impossible, to determine a taxation system based on the capacity of an individual to generate income and not on the actually achieved income.
As regards the contribution ability, taxes seen as the sacrifice that the taxpayer must accept so the state will fulfill its functions and role, among which we can underline the role to monitor a proper redistribution of wealth in the society in order to avoid malfunctions and to support those with reduced possibilities.
Starting from this principle, the notions of horizontal fairness (equal taxes for those with equal contribution abilities) and vertical fairness (different taxes for those with different payment abilities) are established. Thus, if the achieved income is the marker mostly used by the tax practice to point out an individual's contribution ability, the income tax is the closest income to the requirements of tax fairness and the taxpayers must pay taxes according to their achieved income.
Vertical equity, the most controversial requirement of the principle of fiscal equity implies, ultimately, providing equal tax treatment for all taxpayers. Equal tax treatment (or equality before tax) should not be understood, however, as a sort of mathematical equality, but as personal equality, taking into account the personal situation of each taxpayer (income level, dependents and so on), thus imposing different tax burdens (both in absolute and relative size) in relation to the power of contribution. The requirement of fiscal equity has led to the use of percentage rates of tax, and the progressive rates being considered those that ensure the highest degree of fiscal equity, considering the criterion of the ability to pay.
From the perspective of tax fairness, the proponents of the progressive taxation argue that this requirement is already met since the absolute paid amounts increase with income, even if the tax rate remains constant. From this point of view, a similar situation can be reached when using regressive tax rates (the income of 2,000 u. m., a tax rate of 10% results in a tax payment of 200 u. m., while for an income of 10,000 u. m., a tax rate of 3% leads to a tax payment of 300 u. m.). Can this be considered a fair situation? Obviously, no. The ability to pay should not be viewed in terms of amounts owed / paid as tax, but in terms of the capacity of an individual, as we saw above, related to income received, to support the payment of a tax up to a certain rate. Unfortunately, the problem seems related to determining the affordability and in this respect the ability-to-pay principle does not offer solutions.
According to a utilitarian perspective, vertical equity can be ensured through an equal waiver to the utility by the taxpayers' equal sacrifice. Agreeing on the idea that paying a u. m. is a lower sacrifice for people with high income than for those with low income (given that the marginal utility of a unit of income decreases as income increases), individuals should taxed so that the burden to determine for each of them an equal loss of welfare or an equal sacrifice. The theory of the equal sacrifice, advocated by Stuart Mill, has been criticized mainly in terms of its practical utility: the impossibility to determine the utility of each unit of income and taxability when comparing these utilities between individuals.
Progressive taxation was introduced in the tax practice towards the end of the nineteenth century and early twentieth century, mainly as a solution to increase the role of the state in the economy, which state became during that period both state investor in public companies and state insurer and protector. In that period, the redistribution of income between the members of society was one of the important functions of the public sector and progressive taxation - the main tool for achieving it.
3. When do we consider that a tax is progressive?
Progressive taxation is characterized by the fact that the tax rate increases as the taxable material increases, making the dynamics of the tax to overtake that of the taxable matter. Or in other words, a progressive tax structure is when the tax liability of a taxpayer, as a share of income, increases with income.
In this context, it is necessary to distinguish between the various manifestations of tax rates. Thus, it is necessary to distinguish between statutory rates (as set by regulations) and effective rates (rates which actually measure the tax burden borne by the taxpayer, determined as the ratio between paid taxes and achieved revenues). Regarding the last two, we meet marginal tax rate, respectively the rate of tax due for the last unit of income received. This can be a statutory marginal rate or an effective marginal rate.
Although, most times the progressiveness of a tax is assessed by reference to the statutory tax rates, considering that a tax is progressive if the statutory marginal rate increases with income, in the tax practice, a tax can provide a progressive taxation even with a proportional statutory rate, especially after applying clearings, deductions, etc., on the tax base
To exemplify, we will consider on one hand a tax structure established in progressive statutory rates and another set in statutory proportional rate of 15%. The progressive statutory rates are:
Taxable income Tax rate Up to 1500 u. m. 9% From 1.501 to 3.000 u. m. 15% Over 3.000 u. m. 21%
In both cases, a deduction from the tax base of 100 u. m. is applied. We consider two taxpayers, who achieve the following income: taxpayer A--2,000 u. m., taxpayer B--3,500 u. m.
When progressive statutory rates are applied:
- Taxpayer A owes a tax of 1,500 u. m. x 9% + 400 u. m. x 15% = 195 u. m. and bears a tax burden of (195/2.000) x 100 = 9,75% (effective marginal tax rate)
- Taxpayer B owes a tax of 1.500 u. m. x 9% + 1.500 u. m. x 15% + 400 u. m. x 21% = 444 u. m. and bears a tax burden of (444/3500) x 100 = 12,68% (effective marginal tax rate).
When the proportional statutory rates are applied:
- Taxpayer A owes a tax of (2.000 - 100) x 15% = 285 u. m. and bears a tax burden of (285/2.000) x 100 = 14.25% (effective marginal tax rate)
- Taxpayer B owes a tax of (3.500-100) x 15% = 510 u. m. and bears a tax burden of (510/3.000) x 100 = 14.57% (effective marginal tax rate).
Briefly, the change of the marginal tax rates is illustrated in the table below:
As we can notice, the tax burden in the second case, expressed by marginal rate, shows an upward trend even if the statutory rate is proportional. In conclusion, we can consider that, given that, in practice, the taxable income of a taxpayer is almost never equal to income, a tax is proportional if the effective marginal tax rate increases with income, the statutory marginal rate failing to provide an accurate representation of the true progressiveness.
On the other hand, there are a number of other considerations that should be taken into account in establishing the true tax burden borne by the taxpayer and which influence the level of progressiveness of a tax, such as:
- Tax burden resulting from a tax is often shared between several individuals (the legal enforceability differs from the effective enforceability of a tax). To determine the effective enforceability of a tax involves determining who actually bears the tax burden, or who benefits or suffers from its relief or worsening, following the change of the tax rates or its settlement. For example, because a high progressiveness discourages well paid professional activities, the salaries for such professions will be higher than regularly. Therefore, the taxes paid by high-income employees who engage in such activities, expressed in terms of tax burden, will be overestimated and part of the tax burden will be borne by employers
- The net tax, determined as the difference between the tax paid a taxpayer and the direct social transfers used from the budget, as various distributions, compensations, etc. given that, most times, such transfers are for the benefit of people/families with low income, their tax burden is overestimated related to the actual one.
The rhythm of effective marginal rates increase can be constant or variable, considering that a tax structure is more progressive than another one if the effective marginal rate increases faster than the income. If a tax structure is more progressive (the progressiveness is more pungent), the degree of redistribution through tax is higher.
To measure the level of progressiveness of a tax structure, the literature offers at least two solutions.
In the first variant, the higher the ratio of the absolute change in the effective marginal tax rate, the absolute change in income is higher, the more progressive the tax is:
[mathematical expression not reproducible]
A second variant is that where the progressiveness level is determined by comparing it to the tax elasticity related to the achieved income, or, in other words, is the tax elasticity is higher, the progressiveness is higher:
[mathematical expression not reproducible]
Using any of the relations in the example above, we can notice that the level of progressiveness is higher in the case of the progressive statutory rates (P1 = 0,0117, P2 = 1,702 fata de P1 = 0,0014, P2 = 1,0525). However, under certain circumstances, the two relations for the progressiveness' level can indicate contradictory results. Unfortunately, at present, there is no consent as regards the best method of measuring the progressiveness level for a tax structure.
The table below illustrates the calculation of the tax burden (considering and without considering the social contributions) borne by a Romanian taxpayer who achieves salary income (without dependents). The calculations were made from 100 to 100 lei, starting from a gross salary of 800 lei (the minimum gross salary in Romania to be paid starting with July 1st, 2013).
Based on the data calculated in table below, the figure below shows the evolution of the level of the progressiveness of the tax on the salary income in Romania for a taxpayer without dependents.
According to the correlated analysis of the data provided in table no. 2 and figure 1, we can draw the following conclusions:
- For the amount segment from 800 lei to 3,000 lei, the taxation is progressive, with a higher progressiveness level in the first part of the segment and lower, towards its end, according to the level of personal deductions, constant in the first part and regressive after 1,000 lei.
- For the amount segment from 3,000 lei-11,115 lei, the taxation is proportional as the two effective marginal rates are constant. The explanation is that for this segment, personal deductions are not granted.
- After the threshold of 11,115 lei (the equivalent of 5 average gross salaries per economy--the calculation base capped for the social security contributions), the effective tax rate, calculated without considering the social security contributions, proves again an upward trend towards the statutory rate of 16% while the effective rate calculated considering social security contributions (which points out better the true tax burden borne by the employed taxpayer) shows a downward trend. Thus, the total tax burden borne by a taxpayer with a gross salary of 30,000 lei-24.3%, is slightly lower than the one borne by a taxpayer with a minimum gross salary--24/9% and sensitively lower than the maximum level of 29.9% for the taxpayers with salaries from 3,000 to 11,115 lei.
4. The role of the progressive tax in ensuring the redistribution of income
Regarding the role of the progressive tax in ensuring the redistribution of income between the members of the society, F. Hayek, although favoring a system of proportional taxation, said that progressive taxation "is the primary means of income redistribution, and in the absence of such, a policy would be extremely limited." [F. Hayek, 1998]
Tax progressiveness is strongly supported, since the second half of the nineteenth century by the proponents of the fiscal interventionism that assigns to tax a vocation for the distribution and equalization of wealth in the society. However, the use of the tax progressiveness alone cannot generate a satisfactory situation in improving social welfare, which must be supported by budgetary allocations for lowincome people.
The mere reduction of the tax burden in case of proportional taxation, does not lead, as most time considered, to the increase of the redistribution degree, as vice versa is not true as well. In the case of proportional taxation, the increase or decrease of the taxation level will keep the same proportions between the available incomes of the members of society. Therefore, the true redistribution through tax occurs when using progressive taxation, and in this context we consider that as the tax (and overall, a tax system) is more progressive, the better it will respond to the redistribution objectives.
The question is whether the redistribution of income through taxation is necessary and ethic and if the individuals whose income will be complemented due to progressive tax, will use those taxes more efficiently than those from which they were taken. If at microeconomic level, the first will record an increase of wealth, which could be ranked higher to the loss suffered by the latter (if the theory on the decreasing marginal utility is taken into account), at macroeconomic level, the effects appear to be more difficult to identify. It may be possible for the optimal level of transfer to be that where the remaining income available to those with higher contributive abilities will not affect the economic behavior, especially their investment efforts, to the extent that it can be assumed that up to a certain level, lowincome taxpayers use a good deal of the income for current consumption or in other words the redistribution of income through taxation should not affect, at macroeconomic level, the total investment and labor supply.
From an ethical perspective, the question is whether reducing inequalities through tax as means of redistribution as is necessary or not. It depends on the side we are on. For high-income taxpayers (and we cannot think of the efforts made to obtain them), income redistribution is not fair, ethical or moral by any means. From the point of view of the Christian morality and the fact that a civilized society should not focus on the principle "every man for himself", the objective of the redistribution appears necessary, especially if we consider that not all individuals have equal opportunities regarding revenue generation opportunities and sometimes higher income people do not always prove the abilities justifying such income.
The problem on the redistribution of income and assurance of minimum living conditions for all individuals exceeds, at present, the economic boundaries and gains connotations directly related to the human rights in society, interpersonal non-discrimination, etc.
The justification of the redistribution through tax has its origin in the operation of the market economy, considered as able to reach an economic optimum, but not a social one. And thus, the government's intervention is needed to correct inequalities, given that the "market capitalism generates inequality rather than harmony, as regards democratic values. The sources of such inequality cannot be repaired without sacrificing the flexibility and efficiency of capitalist economies. Thus, redistribution through taxation is necessary "[J. Tobin, 1994].
5. Does tax progressiveness influence the job offer of the human factor?
It is possible in such manner for the tax placed progressively, to distort labor supply and the inclination to any income-generating economic activity, "killing the goose that lays the golden eggs" and that because no matter how much we want "the tax is, by its nature, outside neutrality" [N. Hoanta 2010].
Thus, Milton Friedman [quoted by N. Hoanta 2010] shows that, although progressive tax was one of the most common methods used by governments to change the distribution of income in society, progressiveness discourages the implication in highly taxed activities and stimulates the occurrence of tax evasion. It is hard to say if opinions are purely principled against progressiveness or merely reasoned to defend the interests of the wealthy whose appetite for work would be reduced in proportion to the increase in the tax burden. This equation overlooks that the unequal opportunities existing between individuals (in a society less moral, as the human society, most of the wealthy, and who often control the power through money, will not ensure a fair game for everyone) and the fact that whenever other individuals will be willing to make an extra effort to achieve the same level of income or perhaps a slightly lower one, which will thus ensure a more efficient use of resources.
Using tax as means of reducing inequalities in society through the redistribution of income between the members of society influence, undoubtedly, the employment of the human factor either downward or upward and, thus, we can say that it influences the use of one of the important factors of production--the labor factor. Leaving the pursuit of activities, individuals create lower added value, so we talk of a waste, a waste of wealth-creating ability.
The effects of progressive taxation and hence the increase of the tax burden with the income's increase, on the options of the taxpayers either in favor of time for work or leisure, is a concern of the economic theory, given the consequences produced in the social, economic and financial environment.
Increased taxation reduces the actual salary received for the work done (net unit wage for each hour of work performed additionally) and how it represents, ultimately, the price of leisure (that the taxpayer gives up for that salary), which leisure, thus, becomes a cheaper asset. In such a situation, the taxpayer may be tempted to consume a larger quantity of this asset - free time. Following the decrease of the available income, the taxpayer decides to replace the time for work with leisure time. Thus, following the manifestation of the substitution effect, the job supply will be reduced.
An effect opposed to the substitution effect which can, also, manifest itself following the increase of the tax burden, is the income effect. It can manifest itself when the taxpayer decides to increase their productive effort to achieve the salary income obtained before the increase of the tax burden, and, thus, the offer supply will increase.
To appreciate, on theoretical basis, which of the two contradictory effects mentioned above will act, is a very difficult endeavor. In this respect, knowing the elasticity of the labor supply with respect to net income is decisive for determining the impact of taxes on work effort. If labor supply is very elastic, the substitution effect will dominate. But if it is inelastic, then perhaps the number of working hours will not be reduced, but also is likely to increase.
Empirical studies conducted so far do not provide enough meaningful results. For example, in the case of married women, whose decisions on allocating time between work and leisure depend significantly on the total family income, including the income of spouse, it seems that the substitution effect is dominant. In contrast, for men aged between 20 and 60, the empirical literature suggests a low elasticity of 0.05% which indicates a prevalence of the income effect [H. Rosen, T.Gayer, 2010]. But age is not the only variable considered in the analysis of the labor supply elasticity. Estimates made by revenue led to the conclusion that high earners options are not identical to those with low and middle income [C. Corduneanu, 1998]. It seems that the distribution of income in the form of social transfers (usually for the benefit of those with low income) cause the "effect of income in return", which according to the level of income in return, determines the prevalence of the substitution effect. "This effect (the substitution effect) remains dominant for high income earners compared to the income effect given that the income effect in return disappears " [C. Corduneanu, 1998]. Thus, under high fiscal pressure (above a certain threshold of affordability - see the Laffer curve), the substitution effect seems to be dominant, given that the income effect is transferred from the official economy to the underground economy. But which is the optimal level of bearable tax burden there is no answer to this question yet. Perhaps this varies from one taxpayer to another depending on many variables, among which the most important may be the level of income. In these circumstances, the taxation in progressive rates seems justified.
Although progressive rates are harshly criticized by the supporters of the economic liberalism, these are still applied in most EU member states and especially in those states with long traditions in the market economy.
As we can see above, in the European Union, there are only 8 states which apply proportional tax rates on the income of natural persons. The progressive taxation is present in most states, especially in the developed ones, where the objectives of the redistribution through tax and the volume of public goods and services provided to the members of the society are more important.
As regards the criteria considered for determining the tax burden, the benefit criterion, the ability-to-pay criterion and the criterion of equal sacrifice do not provide a perfect viable solution in this respect. However, tax practice has embraced the criterion of the ability to pay expressed by the obtained income. There are, however, several reservations on the valences of the income achieved by an individual to express their true ability to pay. Perhaps if taxation was done on the basis of possibly achieved income, the discussions on the selection of progressive taxes - proportional taxes would be less fervent and the fiscal equity requirement would be easier to accomplish.
Regarding progressive taxation, it is ensured when the effective marginal tax rate increases with income. The statutory marginal rate does not provide an accurate representation of the true progressiveness. In determining the tax burden and, as appropriate, its progressiveness, there should be taken into account, in addition, to the statutory tax rates and the availability of tax base adjustments, the current phenomenon of tax translation and the social transfers. Knowing the level of the tax burden and the progressiveness of a tax depends on establishing its actual incidence, without which the benefit principle and the ability-to-pay principle cannot be applied (the government cannot know whether those who pay benefit from public utilities or if the taxes are paid by those who have the ability to pay). The issue of the actual incidence of a tax is defining for the correct appreciation of justice and the real effects of a tax.
In Romania, up to a level of a gross salary income of 3,000 lei, taxation is progressive, with a more pronounced progressiveness in the range up to 1,000 lei. Between 3,000 and 11,115 lei (the equivalent of 5 average gross salaries in the economy - the ceiling base for social insurance contributions) taxation is proportional. After this level, it becomes regressive (if social security contributions are taken into account). In these circumstances, it is difficult to argue that taxation of wages in Romania is done on an equitable basis.
As concerns the role of the state in ensuring the redistribution of income between the members of society, role undertaken as a result of the market's failure in the provision of certain social welfare, it is thought that it may be best accomplished through the use of progressive tax rates- proportional rates, whether growing or decreasing, always keeping the same ratio between the available income of the members of society. To the extent that there is not always an interdependent relationship between the achieved income and the efforts of an individual to produce it, and considering that not all individuals have equal opportunities in terms of income generation opportunities, the redistribution through tax occurs socially justified.
From an economic perspective, there may be an optimum level of the transfers through tax that do not affect, at macroeconomic level, the total investment and labor supply.
Moreover, the use of tax as means of reducing inequalities between members of the society influence, undoubtedly, the job offer of the human factor. In this respect we can speak of an income substitution effect and an income opposite effect. Empirical studies do not provide enough meaningful results. Probably, the elasticity of the labor supply varies from one individual to another depending on sex, age, income, family situation, aspirations, etc. The idea, that increasing the tax burden induces a substitution effect in the formal economy following the transfer of income to the regulated economy, seems plausible.
Among other arguments in favor of progressive tax, we can mention:
- It provides more to the government income as the income of citizens from the lower and the middle class grows. It meets best the function of an automatic stabilizer. In periods of economic boom, income growth is tempered by the automatic action of progressive taxation and thus the economic expansion is diminished. The action of the progressive tax unfolds in reverse when the economy is in a period of decline. If the fluctuations of the economic cycle--developmentdecline, have negative consequences on the economic activity, then as long as they cannot be avoided, it is at least recommended to mitigate the "violence" of such fluctuations. The progressive income tax has a role in this direction automatically without involving any intervention from authorities.
- Without progressive taxes, there would be the risk for all wealth to be concentrated in the hands of few people. Progressive taxation reduces income inequality and prevents social stratification, which exceeding a certain level, can be harmful to the society.
Ultimately, the distribution of the tax burden between the members of the society is a matter of political choice, which obviously cannot please everyone and this is because "in a coercive system, such as the tax one, the structure of government finance... will be neither efficient nor equitable in terms of all taxpayers." [J. Nemec, G. Wright, 2000].
(1.) Corduneanu C. (1998), Sistemul fiscal in ctiinta finantelor, Editura Codecs, Bucuresti
(2.) Cullis J., Jones P. (1998), Public Finance and Public Choice, Second Edition, Oxford University Press
(3.) Hayek A. F. (1998), Constitutia libertatii, Editura Institutul European, Iasi
(4.) Hillman L. A. (2009), Public Finance and Public Policy Responsibilities and Limitations of Government, Second Edition, Cambridge University Press
(5.) Hoanta N. (2000), Economie si finante publice, Editura Polirom, Iasi
(6.) Hoanta N. (2010), Evaziunea fiscala, Editia a II--a, Editura C.H. Beck, Bucuresti
(7.) Mosteanu T. (2005), Economia sectorului public, Editura Universitara, Bucuresti
(8.) Nemec J., Wright G. (2010), Finante publice. Teorie si practica in tranzitia central europeana, Editura Ars Longa, Iasi, 20003.
(9.) Rosen H.S., Gayer T. (2010), Public Finance, McGraw-Hill, International Edition
(10.) Slemrod J.B., Progressive Taxes, Library Economics Liberty, www.econlib.org
(11.) Talpos I. (1995), Finantele Romaniei, Editura Sedona, Timisoara, 1995
(12.) Vacarel Iulian (coord.) (2007), Finante publice, Editura Didactica si Pedagogica, Editia a VI-a, Bucuresti
Stela Aurelia Toader (*)
(*) Stela Aurelia Toader is Professor of Public Finance, Taxes and Corporate Finance at the Romanian-American University in Bucharest. E-mail:email@example.com
Table no.1: Statutory rates vs. effective taxation rates Gross Taxable Progressive statutory rates income income (V) Tax (I) Marginal rate Statutory Effective 2000 1900 195 15% 9,75% 3500 3400 444 21% 12,68% Gross Proportional statutory rates income (V) Tax (I) Marginal rate Statutory Effective 2000 285 15% 14,25% 3500 510 15% 14,57% Table no. 2: The effective tax rate for salary income in Romania for a taxpayer without dependents Salary Social security Health Unemployment Personal gross contributions contributions contributions deductions income 800 84 44 4 250 900 95 50 5 250 1.000 105 55 5 250 1.100 116 61 6 240 1.200 126 66 6 230 1.300 137 72 7 220 1.400 147 77 7 200 1.500 158 83 8 190 1.600 168 88 8 180 1.700 179 94 9 170 1.800 189 99 9 150 1.900 200 105 10 140 2.000 210 110 10 130 2.100 221 116 11 120 2.200 231 121 11 100 2.300 242 127 12 90 2.400 252 132 12 80 2.500 263 138 13 70 2.600 273 143 13 50 2.700 284 149 14 40 2.800 294 154 14 30 2.900 305 160 15 20 3.000 315 165 15 0 3.100 326 171 16 0 3.200 336 176 16 0 10.000 1.050 550 50 0 11.000 1.155 605 55 0 11.115 1.167 611 56 0 11.116 1.167 611 56 0 11.200 1.167 616 56 0 12.000 1.167 660 60 0 13.000 1.167 715 65 0 14.000 1.167 770 70 0 20.000 1.167 1.100 100 0 30.000 1.167 1.650 150 0 40.000 1.167 2.200 200 0 50.000 1.167 2.750 250 0 100.000 1.167 5.500 500 0 Salary Tax Actual Actual gross marginal rate marginal rate income without social with social security security contributions contributions 800 67 8,4% 24,9% 900 80 8,9% 25,6% 1.000 94 9,4% 25,9% 1.100 108 9,8% 26,5% 1.200 124 10,3% 26,8% 1.300 138 10,6% 27,2% 1.400 155 11,1% 27,6% 1.500 170 11,3% 27,9% 1.600 185 11,6% 28,1% 1.700 200 11,8% 28,3% 1.800 217 12,1% 28,5% 1.900 231 12,2% 28,7% 2.000 246 12,3% 28,8% 2.100 261 12,4% 29% 2.200 278 12,6% 29,1% 2.300 293 12,7% 29,3% 2.400 308 12,8% 29,3% 2.500 323 12,9% 29,5% 2.600 339 13% 29,5% 2.700 354 13,1% 29,7% 2.800 369 13,2% 29,7% 2.900 384 13,2% 29,8% 3.000 401 13,4% 29,9% 3.100 414 13,4% 29,9% 3.200 428 13,4% 29,9% 10.000 1.336 13,4% 29,9% 11.000 1.470 13,4% 29,9% 11.115 1.485 13,4% 29,9% 11.116 1.485 13,4% 29,9% 11.200 1.498 13,4% 29,8% 12.000 1.618 13,5% 29,2% 13.000 1.768 13,6% 28,6% 14.000 1.919 13,7% 28% 20.000 2.821 14,1% 25,9% 30.000 4.325 14,4% 24,3% 40.000 5.829 14,6% 23,5% 50.000 7.333 14,7% 23% 100.000 14.853 14,9% 22% Source: Personal calculations Table no. 3: Statutory tax rates applicable in the EU states in 2013 EU member state Tax on salary income--statutory rates Austria Progressive rates--statutory marginal rate 50% Belgium Progressive rates--statutory marginal rate 53,7% Bulgaria Proportional rate--10% Cyprus Progressive rates - statutory marginal rate 38,5% Czech Republic Proportional rate--22% Denmark Progressive rates--statutory marginal rate 55,6% Estonia Proportional rate--21% Finland Progressive rates--statutory marginal rate 51,1% France Progressive rates--statutory marginal rate 50,2% Germany Progressive rates--statutory marginal rate 47,5% Greece Progressive rates--statutory marginal rate 46% Hungary Proportional rate--16% Ireland Progressive rates--statutory marginal rate 41% Italy Progressive rates--statutory marginal rate 43% Latvia Proportional rate--24% Lithuania Proportional rate--15% Luxemburg Progressive rates--statutory marginal rate 43,6% Malta Progressive rates--statutory marginal rate 35% The Netherlands Progressive rates--statutory marginal rate 52% Poland Progressive rates--statutory marginal rate 32% Portugal Progressive rates--statutory marginal rate 53% Romania Proportional rate - 16% Slovakia Proportional rate--25% Slovenia Progressive rates--statutory marginal rate 50% Spain Progressive rates--statutory marginal rate 52% Sweden Progressive rates--statutory marginal rate 56,6% Great Britain Progressive rates--statutory marginal rate 45% Source: Taxation trends in the European Union, edition 2013 www.europa.eu
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|Author:||Toader, Stela Aurelia|
|Publication:||Romanian Economic and Business Review|
|Date:||Sep 30, 2013|
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