A progressive tax is a tax in which the percentage of one’s income that goes to pay this tax rises as one’s income rises. Perhaps the most famous example of this is the federal income tax. It is a progressive tax.
There are generally said to be three kinds of taxes. These are regressive taxes, flat taxes, and progressive taxes. In a regressive tax, people who have less money pay a greater percentage of their income in tax. An example of this is a tax on groceries. People who have less money will generally have to spend a greater percentage of their money on groceries. If they do, they also pay a greater percentage of their income in taxes. Please note that this does not mean that they pay a larger amount of money. Instead, it means that they pay a greater percentage of their income.
A flat tax is one in which everyone pays the same percent of their income in taxes. Finally, a progressive tax is one in which people with more money pay a higher percentage of their money in taxes. For example, in the current federal income tax brackets, the poorest people had a marginal tax rate of 10% while the richest had a marginal tax rate of 39.6%. This is a progressive tax.
Thank you for your quick respone.
After reading what you had to say about the regressive tax, I was curious if it is ever used. If so, when would it be effective to use a regressive tax?
Thanks for the help!