page_title: Progressive tax
section_title: Marginal and effective tax rates
hierarchical_section_title: Progressive tax / Measuring progressivity / Marginal and effective tax rates
caption_attribution_description: English: The graphs illustrate the rise of the tax rates (marginal and average) as a function of the taxable annual income according to the German taxation law effective in 2010.[1] ↑ German income tax law (Einkommensteuergesetz – EStG)
context_page_description: A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax. An example of a regressive tax would be a sales tax, with a sales tax a larger proportion of income is taxed to the poor than the rich.
  The term is frequently applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income. It can also apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects.
context_section_description: The rate of tax can be expressed in two different ways; the marginal rate expressed as the rate on each additional unit of income or expenditure (or last dollar spent) and the effective (average) rate expressed as the total tax paid divided by total income or expenditure. In most progressive tax systems, both rates will rise as the amount subject to taxation rises, though there may be ranges where the marginal rate will be constant. Usually, the average tax rate of a tax payer will be lower than the marginal tax rate. In a system with refundable tax credits, or income-tested welfare benefits, it is possible for marginal rates to fall as income rises, at lower levels of income.
caption: German marginal and average income tax rates display a progressive structure.
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