Progressive taxation

Progressive taxation

Characterizes a convex tax schedule that results in a higher effective tax rate on higher income levels. Increases for some increases in income, but never decreases with an increase in income.

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Progressive taxation

A system of taxation in which persons or corporations are assessed a greater percentage of their income as tax liability according to their theoretical ability to pay. That is, taxpayers pay more in taxes if they earn more in income. For example, taxpayers may pay 25% of their income in taxes up to a certain amount, and 35% of everything earned over that amount.

A theory behind progressive taxation states that persons or corporations who earn the same or a similar amount of money should be taxed in the same or a similar way. For example, the theory states that two individuals making $50,000 per year should be taxed the same amount, regardless of how they earned their income. This is known as horizontal equity. While most countries have some form of progressive taxation, it is usually coupled with other taxes, such as a sales tax, and few countries treat all income as exactly the same.