Definition
A progressive tax is one whose average rate increases with the taxpayer's ability to pay. Higher earners hand over a larger share of each additional dollar, while lower earners pay a smaller share or none at all.
It contrasts with a flat tax, where everyone pays the same rate, and a regressive tax, where the rate falls as income rises. Most national income-tax systems are progressive, structured through brackets.
Why it matters
How it works
Progressive systems use brackets: income within each band is taxed at that band's rate. Only the income above a threshold is taxed at the higher rate, so the marginal rate (on the last dollar) exceeds the average rate (on all income).
The justification often appeals to diminishing marginal utility of income. The trade-off is incentive effects: very high marginal rates may discourage extra effort, push activity into tax avoidance, or encourage capital to relocate.