Progressive tax

Rough estimation of average tax rates by income groups in France, the United Kingdom, and the United States, 1970 (left) and 2005 (right). It implies that in these respective countries, taxes were more progressive in 1970 than in 2005.

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence on people with a lower ability to pay, as such taxes shift the incidence increasingly onto those with a higher ability to pay. The opposite of a progressive tax is a regressive tax, such as a sales tax or tariffs, where the poor pay a larger proportion of their income compared to the rich despite paying the same amount (for example, spending on groceries and food staples varies little against income, so the poor pay similar to the rich even while latter has much higher income).

The term is frequently applied to personal income taxes, in which people with lower income pay a lower percentage of their income in tax than those with higher income. It can also apply to adjustments to the tax base through tax exemptions, tax credits, or selective taxation that create progressive distributional effects. For example, a wealth or property tax, a sales tax on luxury goods, or the exemption of sales taxes on necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.

Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality, as the tax structure reduces inequality; economists disagree on the tax policy's economic and long-term effects. One study suggests progressive taxation is positively associated with subjective well-being, while overall tax rates and government spending are not.