A progressive tax system is one which assesses a higher percentage rate of taxation as income levels or income brackets increase. The U.S. federal income tax system is a progressive tax system. (For the following examples consider all the taxpayers to be filing their income tax returns as single individuals.) In 1999 the person making from 0 to $25,350 would pay 15 percent on all of their income. Therefore, a low-income person pays 15 percent on their total income. The person making up to $61,400 pays 15 percent on the first $25,350, but then pays 28 percent on the income between $25,350 and $61,400. To illustrate, if a middle income individual makes $50,000, 15 percent or $3,802.50 would be paid on the first $25,350. On the next $24,650 ($50,000 minus $25,350), 28 percent or $6,902 is added to the $3,802.50 for a total tax payment of $10,704.50. That amount is 21 percent of the total income of the middle-income person. This tax rate is an increase of six percent over the 15 percent the lower-income person would pay on his or her total income. Because higher income groups pay a higher percentage of their total income in taxes, this tax structure is considered progressive. Using tax rates for 1999, income in the range of $61,400 to $128,100 is taxed at 31 percent, $128,100 to $278,450 at 36 percent, and over $278,450 at 39.6 percent. In 1982 the top income bracket was taxed at 50 percent and 14 tax brackets existed. The Tax Reform Act of 1986 reduced the number of income brackets to three (15 percent, 28 percent, and 31 percent). The Clinton Tax Package of 1993 increased the brackets to the five used in the 1999 illustration (15 percent, 28 percent, 31 percent, 36 percent, and 39.6 percent).
See also: Proportional Tax, Regressive Tax