Progressive taxation

A tax system in which higher incomes face higher average tax rates. Its defining feature is that the share of income paid in tax rises as income increases.

Marginal tax rate: The tax rate applied to the next unit of taxable income. Progressive schedules raise marginal rates across income brackets, though each rate applies only within its bracket.
Proportional tax: A tax system in which the tax rate stays constant as the tax base changes. Unlike progressive taxation, it keeps the average rate constant across income levels.
Income tax: A tax levied on income earned by individuals or organizations. Progressive rate schedules are most commonly associated with personal income taxes.
Income inequality: The unequal distribution of income among individuals or households. Progressive taxation is often designed to reduce inequality in disposable income.
Adam Smith: An eighteenth-century Scottish political economist and moral philosopher, author of The Wealth of Nations. His canons of taxation include the principle that contributions should reflect ability to pay.
Average tax rate: The total tax paid divided by the relevant income or tax base. Its increase across income levels is the defining test of progressivity.
Regressive tax: A tax whose average rate falls as the tax base or income rises. It reverses progressivity, often because the same charge consumes a larger share of lower incomes.
Tax-and-transfer system: The combined set of taxes and public payments that changes household disposable income. Progressivity depends on both taxes collected and benefits received.
Tax progressivity index: A quantitative measure of how tax burdens change across the income distribution. Such indices distinguish the degree of progressivity from revenue size or average tax levels.
Ability-to-pay principle: The principle that tax burdens should reflect taxpayers' economic capacity. It provides a major ethical rationale for increasing average rates with income.

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