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?
In: 1
You’d be wrong.
The legislature gets input from economic calculations, in the US from the Congressional Budget Office, but more often than not the numbers are chosen to send political messages.
There are very, very few flat tax systems. Almost all systems are extremely progressive, what’s the point of collecting taxes from some poor person who you make social safety net payments to? That would just be government using taxes to collect its own money. Tax bands are set politically, trading off the influence of the rich with the influence of the anti-rich. (poor ≠ anti-rich) Poor people have little money; whereas anti-rich people don’t want other people to have as much money as they already have.
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