Progressive Tax
A tax system where rates increase as income rises, with higher earners paying a larger percentage. The US federal income tax and most state income taxes use progressive brackets.
A progressive tax system applies higher tax rates to higher levels of income. The US federal income tax is the most prominent example, with seven brackets ranging from 10% to 37% for 2025. Most states with income taxes also use progressive structures, though with varying numbers of brackets and rate ranges.
The key feature of a progressive system is that only the income within each bracket is taxed at that bracket's rate. This means moving into a higher bracket does not retroactively increase the tax on income in lower brackets. The result is an effective tax rate that is always lower than your marginal (highest) rate.
Progressive taxation is based on the ability-to-pay principle — the idea that those who earn more can afford to contribute a larger share of their income. Critics argue it can discourage additional work and investment, while supporters point out it reduces after-tax income inequality. The progressivity of the overall system depends not just on rate structures but also on deductions, credits, and how different types of income are taxed.
Related Terms
Tax Bracket
A range of income taxed at a specific rate. The US uses a progressive system with seven brackets ranging from 10% to 37% for 2025.
Marginal Tax Rate
The tax rate applied to your last (highest) dollar of taxable income. It indicates how much tax you would pay on an additional dollar of earnings.
Flat Tax
A tax system with a single rate applied to all income levels. Several US states use flat income tax rates, including Illinois (4.95%), Colorado (4.4%), and Pennsylvania (3.07%).
Effective Tax Rate
Your total federal income tax divided by your total income, expressed as a percentage. It represents the average rate at which your income is actually taxed.