# Progressive Tax: What It Is, Advantages, and Disadvantages

![Progressive Tax: A tax rate that increases as taxable income increases.](https://www.investopedia.com/thmb/Ql5FLOXOJihNEfr5dO9yCyE5hP4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/progressivetax.asp-Final-2e575ea237464ec9be2bb52e58a0e085.png)

*— Dennis Madamba / Investopedia*

> **Definition**
>
> A progressive tax is a tax rate that moves from lower for those who earn smaller taxable incomes to higher for larger earners.

## What Is a Progressive Tax?

A progressive tax imposes a lower tax rate on low-income earners and a higher rate on those with higher incomes. It thus involves a tax rate that rises as [taxable income](https://www.investopedia.com/terms/t/taxableincome.asp) does. This is usually achieved by creating [tax brackets](https://www.investopedia.com/terms/t/taxbracket.asp) that group taxpayers by income range.

The income tax system in the United States is considered progressive. There are generally seven tax brackets.

### Key Takeaways

*   A progressive tax imposes a higher tax rate on higher taxable incomes.
*   A regressive tax is applied uniformly across all ranges of income, so it can affect low-income earners more severely.
*   A flat tax is also a single income tax rate that applies to all taxable income, no matter how much it is or how little.
*   The U.S. Social Security payroll tax is considered to be a flat tax, but it does have an income cap.

## Understanding the Progressive Tax

The rationale for a progressive tax is that a flat percentage on all [income](https://www.investopedia.com/terms/i/income.asp) would place a disproportionate burden on people with low incomes. The dollar amount owed might be smaller, but the effect on their real spending power would be greater.

How progressive a tax structure is depends on how much of the tax burden is transferred to higher incomes. A [tax code](https://www.investopedia.com/understanding-us-tax-code-8731466) with tax rates ranging from 10% to 80% would be more progressive than one with rates ranging from 10% to 30%.

## Advantages and Disadvantages of a Progressive Tax

### Advantages

A progressive tax system reduces the tax burden on those who can least afford to pay. A progressive tax system tends to collect more taxes than flat taxes or regressive taxes because the highest percentage is collected from those with the highest amounts of money. Those with greater resources fund a larger portion of the services that all citizens and businesses rely on, such as road maintenance and public safety.

> **Important**
>
> This leaves more money in the pockets of low-wage earners, who are likely to spend more of it on essential goods and services and stimulate the economy in the process.

### Disadvantages

Critics of a progressive tax system argue that it’s a disincentive to success. They also oppose the system as a means of income redistribution, which they believe punishes the wealthy and even the middle class.

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

Pros

*   Reduces tax burden on those who can afford it least
    
*   Collects more taxes than flat or regressive taxes
    

Cons

*   Arguably disincentivizes success
    
*   Means of income redistribution that critics believe punishes the wealthy and the middle class
    

## Progressive Tax vs. Regressive Tax

A [regressive tax](https://www.investopedia.com/terms/r/regressivetax.asp) is the opposite of a progressive tax. A rate is applied uniformly across all levels of income, so the tax burden decreases as income rises.

A [sales tax](https://www.investopedia.com/terms/s/salestax.asp) is an example of a regressive tax. Two individuals would pay the same amount of sales tax on an identical bag of groceries even if one earns $300,000 a year and the other earns $30,000. But the less wealthy individual has shelled out a greater percentage of their income to purchase that food.

## Progressive Tax vs. Flat Tax

Like a regressive tax, a [flat income tax system](https://www.investopedia.com/terms/f/flattax.asp) imposes the same percentage tax rate on everyone regardless of income. The Federal Insurance Contributions Act (FICA) tax that funds [Social Security](https://www.investopedia.com/terms/s/socialsecurity.asp) and [Medicare](https://www.investopedia.com/terms/m/medicare.asp) is often considered to be a flat tax because all wage earners pay the same percentage. But the Social Security tax does have an earnings cap. It applies only to income up to a certain amount that changes annually. If you earn more than this cap, you don't pay Social Security taxes.

The Medicare tax applies to all wages. There’s no earnings cap on this as there is for the Social Security tax.

## Do I Pay the Same Percentage of Tax on All My Income?

No. You only pay your highest percentage tax rate on the portion of your income that exceeds the minimum threshold for that tax bracket.

## How Often Do the Tax Brackets Change?

Tax brackets are set by Congress and enforced by the Internal Revenue Service (IRS). Changes are typically made based on legislation like the [Tax Cuts and Jobs Act (TCJA)](https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/) of 2017. The TCJA kept seven tax brackets, but it increased the income ranges for many of them so some individuals could earn more before moving into a higher bracket. The income ranges are also adjusted annually to keep pace with [inflation](https://www.investopedia.com/terms/i/inflation.asp) and are subject to change following future legislation.

## What Is the Purpose of a Progressive Tax?

Progressive taxes exist so that the burden of paying for government services, oversight, and infrastructure doesn’t fall disproportionately on those earning lower incomes. Those who earn less are taxed at a lower rate. Those who earn more are taxed at a higher rate. This concept is known as [ability-to-pay taxation](https://www.investopedia.com/terms/a/ability-to-pay-taxation.asp). The top earners are taxed more and on larger sums of money, so a progressive tax increases the amount of tax revenue coming in.

## The Bottom Line

A progressive tax progresses to higher tax rates as taxable income increases. Individuals with lower incomes are taxed at lower rates than those with higher incomes. The U.S. progressive income tax involves seven tax brackets, each with its own rate.

> **Article Sources**
>
> 1.  Tax Foundation. “[TaxEDU Glossary: Regressive Tax](https://taxfoundation.org/tax-basics/regressive-tax/).”
>     
> 2.  U.S. Social Security Administration. “[Contribution and Benefit Base](https://www.ssa.gov/OACT/COLA/cbb.html).”
>     
> 3.  Internal Revenue Service. “[Topic No. 751, Social Security and Medicare Withholding Rates](https://www.irs.gov/taxtopics/tc751).”
>     
> 4.  Tax Policy Center. “[How Did the Tax Cuts and Jobs Act Change Personal Taxes?](https://www.taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-personal-taxes)”