GlossaryBeginner
Progressive Tax
A tax system where the rate applied increases as income or gains rise, generally structured in brackets with higher rates on higher portions of income.
A progressive tax system applies a higher tax rate as income or gains increase, generally structured as a series of brackets, where each bracket's rate applies only to the portion of income within that bracket, not to the entire amount.
This bracket structure is exactly why a taxpayer's effective tax rate (see Kaavon's "Effective Tax Rate" glossary definition) is generally lower than their top marginal rate — only the income within the highest bracket is actually taxed at that top rate.
Examples
- In a progressive system, earning slightly more income and crossing into a higher bracket doesn't retroactively tax all prior income at the new, higher rate.
- Most major economies' income and capital gains tax systems are structured progressively, with a flat tax system being the less common alternative.