Disadvantages
High progressive tax makes work and extra effort become less valuable.
- The effect on the willingness to accept risk
High marginal rates of tax are likely to make entrepreneurs less willing to undertake risks.
Some financial inducement is usually required if people are to be asked to change their location, or undergo training, or accept promotion. Progressive taxation by reducing differentials is likely to have some effect on a person's willingness to any of the above.
- Encourages tax avoidance and evasion.
- Outflow of high achievers to other countries with lower Marginal tax rates.
- It can lead to fiscal-drag where wage and price inflation cause people to pay higher proportion of income as tax.