Tax rates on higher income group have been increased. Which economic value does it reflect? Explain.
The economic value that is reflected in the rise in tax rate for higher income group is the ‘equality and social welfare’. The main objective of the budgetary policy of the government is to reduce inequalities of income and wealth in the country. For this, it performs the function of equal distribution of income and wealth.
Even distribution of wealth and social welfare remains the main objective of budgetary policy. The government uses progressive taxation policy to reduce the inequalities of income and wealth in the country. Government imposes high tax rates on higher income group and low tax rates on lower income group. People with income below a certain level are not levied any direct tax altogether.
On the other hand, the government spends these tax receipts on granting subsidies and providing other public services such as health and education to people with lower income groups. Thus, the wealth gets redistributed and reduction in inequalities is achieved.