Tax levied at a rate that increases as the quantity subject to taxation increases. Designed to collect a greater proportion of tax
revenue from wealthy people, progressive taxes reflect the view that those who
are able to pay more should carry a heavier share of the tax burden.
may provide for exemption from tax liability for incomes under a specified amount, or they may establish progressively greater rates for larger
and larger incomes. The presence of deductions can also make a tax progressive.
Progressive taxes are a stabilizing force in periods of inflation
because the amount of tax revenue changes more than proportionately with an increase or
decrease in income. For example, in an inflationary economy, as prices and
incomes rise, a greater percentage of taxpayers' income goes toward taxes.
Government revenues increase, and the government has more leverage over the
economy. A side effect of this system is that lower-income taxpayers have an
especially difficult time making ends meet when inflation is high. To
compensate, many economists advocateindexation
; several countries adjust their tax rates annually in times of inflation, usually in
line with the consumerprice index