What Is a Progressive Tax? Advantages and Disadvantages

What Is a Progressive Tax?

A progressive tax involves a tax rate that increases or progresses as taxable income increases. It imposes a lower tax rate on low-income earners and a higher rate on those with higher incomes. This is usually achieved by creating tax brackets that group taxpayers by income range.

The income tax system in the U.S. is considered a progressive system. There are seven tax brackets in 2024 with rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. There were 16 tax brackets in 1985.

Understanding the Progressive Tax

The rationale for a progressive tax is that a flat percentage on all income 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 upon how much of the tax burden is transferred to higher incomes. A tax code with tax rates ranging from 10% to 80% would be more progressive than one with rates ranging from 10% to 30%.

Advantages of a Progressive Tax

A progressive tax system reduces the tax burden on those who can least afford to pay. They only have to pay 12% of their top dollars of income if they're single and earn less than $47,150 a year as of 2024. A single filer who earns more than $609,350 annually must pay 37% on their top dollars of income.

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.

Disadvantages of a Progressive Tax

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 unfairly.

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

Progressive Tax vs. Regressive Tax

A regressive tax 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 is an example of a regressive tax. Both 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 imposes the same percentage tax rate on everyone regardless of income. The Federal Insurance Contributions Act (FICA) tax that funds Social Security and Medicare 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 $168,600 in 2024. You wouldn't have to pay this tax on $1,000 of your income if you earned $169,600.

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

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. These tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37% in 2024. The rates didn't change from 2023 to 2024 but the ranges of income covered by the brackets increased to reflect inflation.