What Is a Progressive Tax?

A progressive tax is based on the taxpayer's ability to pay. It imposes a lower tax
rate on low-income earners than on those with a higher income. This is usually
achieved by creating tax brackets that group taxpayers by income ranges.

The income tax system in the U.S. is considered a progressive system, although it
has been growing flatter in recent decades. For 2021, there are only seven tax
brackets, with rates of 10%, 12%, 22%, 24%, 32%, 35% and 37%.1

There were 16 tax brackets in 1985.2

KEY TAKEAWAYS
A progressive tax imposes a higher percentage rate on taxpayers who have higher
incomes. The U.S. income tax system is an example.
A regressive tax imposes the same rate on all taxpayers, regardless of ability to
pay. A sales tax is an example.
A flat tax is an income tax that is the same percentage of income for all. The U.S.
Social Security payroll tax would be a flat tax except that it has an upper cap.3
Understanding the Progressive Tax
The rationale for a progressive tax is that a flat percentage tax would be a
disproportionate burden for people with low incomes. The dollar amount owed may be
smaller, but the effect on their real spending power is greater.

The degree to how progressive a tax structure is depends upon how much of the tax
burden is transferred to higher incomes. If one tax code has a low rate of 10% and
a high rate of 30%, and another tax code has tax rates ranging from 10% to 80%, the
latter is more progressive.

Advantages of a Progressive Tax

On the pro side, a progressive tax system reduces the tax burden on the people who
can least afford to pay. That leaves more money in the pockets of low-wage earners,
who are likely to spend all of that money on essential goods and stimulate the
economy in the process.

A progressive tax system also tends to collect more taxes than flat taxes or
regressive taxes, as the highest percentage of taxes is collected from the highest
amounts of money.

A progressive tax also requires those with the greatest amount of resources to fund
a greater portion of the services that all citizens and businesses rely on, such as
road maintenance and public safety.

Disadvantages of a Progressive Tax

Critics of progressive taxes consider them to be a disincentive to success. They
also oppose the system as a means of income redistribution, which they believe
punishes the rich, and even the middle class, unfairly.

Opponents of the progressive tax generally are supporters of low taxes and
correspondingly minimal government services.