For students, economic policies such as taxation are not just abstract theories studied in class, but forces that shape real opportunities both now and in the future. The quality of public education, the availability of scholarships, and even future income after graduation are all influenced by how governments collect and spend tax revenue. Among these policies, progressive taxation plays a central role. It is a system in which individuals with higher incomes pay a higher percentage of their earnings in taxes, based on the idea that those with greater financial capacity should contribute more to society. While this approach is widely seen as fair, it also raises an important economic question: does increasing fairness through higher taxes on the wealthy reduce efficiency by weakening incentives to work and invest? This debate is especially relevant in a world where inequality continues to grow, making it necessary to evaluate whether progressive taxation can balance both equity and economic performance.
One of the strongest arguments in favour of progressive taxation is its ability to address inequality. According to the World Inequality Lab, the World Inequality Report 2022 shows that the richest 10 percent of the global population owns about 76 percent of total wealth, while the poorest 50 percent owns only 2 percent. Such a gap can limit social mobility and create long-term economic challenges. By redistributing income through taxation and public spending, governments are able to improve access to education, healthcare, and other essential services. This not only promotes fairness but can also strengthen the economy by building a more skilled and capable workforce.
Evidence from tax systems also supports the claim that progressive taxation shifts the burden toward those most able to pay. Data from the Internal Revenue Service shows that in 2020, the top 1 percent of earners in the United States paid approximately 42 percent of federal income taxes, despite earning about 22 percent of total income. This indicates a clear level of redistribution. From an equity perspective, such outcomes are consistent with the principle that taxation should reflect an individual’s ability to contribute.
On the other hand, the efficiency argument cannot be ignored. High marginal tax rates may discourage individuals from increasing their income, as the benefits of additional effort are reduced. This could influence decisions related to working hours, career advancement, and investment. The Organisation for Economic Co-operation and Development reports that the average tax wedge across member countries was around 34.6 percent in 2021, meaning that a significant portion of labour income is taken in taxes. In theory, this could reduce both labour supply and overall economic output.
-Vũ Thảo Anh