A progressive tax is one that takes a higher percentage of income as income rises. The federal income tax is an example of a progressive tax. Table 15.1 shows federal income tax rates for various brackets of income for a family of four in 2007. Such a family paid no income tax at all if its income fell below $24,300. At higher income levels, families faced a higher percentage tax rate. Any income over $374,000, for example, was taxed at a rate of 35%. Whether or not to make the tax system more progressive was a major debating point during the U.S. presidential election of 2008.
|
2007 adjusted gross income (family of four) |
Personal income tax rate applied to bracket |
|
Less than $24,300 |
Zero (family may receive earned income credit) |
|
$24,300–$88,000 |
15% |
|
$88,000–152,800 |
25% |
|
$152,800–$220,150 |
28% |
|
$220,150–$374,000 |
33% |
|
Greater than $374,000 |
35% |
The federal income tax is progressive. The percentage tax rate rises as adjusted gross income rises.
While a pure flat tax would be proportional, most proposals for such a tax would exempt some income from taxation. Suppose, for example, that households paid a “flat” tax of 20% on all income over $40,000 per year. This tax would be progressive. A household with an income of $25,000 per year would pay no tax. One with an income of $50,000 per year would pay a tax of $2,000 (.2 times $10,000), or 4% of its income. A household with an income of $100,000 per year would pay a tax of $12,000 (.2 times $60,000) per year, or 12% of its income. A flat tax with an income exemption would thus be a progressive tax.
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