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Progressive Tax

Definition

A progressive tax is a type of tax where the tax rate increases as the taxable income increases. In other words, people with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes.

Analogy

Imagine you and your friend both have part-time jobs. However, you earn more money than your friend because you work more hours. If your parents decide to charge you a higher percentage of your earnings as "rent" compared to your friend, that would be like a progressive tax.

Related terms

Proportional Tax: A proportional tax, also known as a flat tax, is a type of tax where everyone pays the same percentage of their income regardless of how much they earn.

Regressive Tax: A regressive tax is a type of tax where the tax rate decreases as the taxable income increases. In other words, people with lower incomes pay a higher percentage of their income in taxes compared to those with higher incomes.

Marginal Tax Rate: The marginal tax rate refers to the additional amount of taxes paid on an additional dollar earned. It represents the change in taxes divided by the change in taxable income.