I would assume that governments estimate the amount of extra money they need to finance public healthcare, pensions, infrastructure improvements, etc. They make the projection for the coming years, add some safety gap on top and then calculate the tax rate based on this required amount of extra income. Is that true?
If so, such calculation leads us to a flat tax rate. If we are talking about a progressive tax, how are the decisions about tax bands and rates for each band made?
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Although this sounds logical, in real life, it seldom works that way. Tax rates and tax policy are rarely revised annually. In many cases, these things are a massive political effort, big industries, significant industrial sectors (defense etc), labor unions, political parties are engaged. For example, the marginal income tax rates might be fixed for many years (or decades) if there isn’t political will to change things. Tax rates are always a mix of revenue goals, political aims and an exercise of various powers in the country.
Governments almost always have annual budgeting exercises, where they allocate spending and funding for programs. In some countries there are laws that require balanced budgets or limit the spending in some ways. In others things are not spelt out so clearly and governments will/can balance their books by borrowing.
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