Tax rates can be progressive, proportional, or regressive.
A progressive tax rate increases as the taxpayer’s income increases.
• If your tax rate is 10% for your first $10,000 of income, 15% for your next $10,000 of income, and 20% for any income beyond that, that’s a progressive tax
• Higher levels of income are taxed at higher rates
A proportional tax rate remains constant as the taxpayer’s income increases.
• If your tax rate is 10% regardless of your income level, that’s a proportional tax
A regressive tax rate decreases as the taxpayer’s income increases.
• If your tax rate is 10% for your first $10,000 of income, 6% for your next $10,000 of income, and 2% for any income beyond that, that’s a regressive tax
• Higher levels of income are taxed at lower rates
Federal income tax rates in the U.S. are progressive.
If you’re wondering why billionaires pay lower tax rates than some people in the top tax bracket, it’s because a lot of their income is tax-free or taxed at preferential rates.
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