Certified Government Financial Manager (CGFM) 2026 – 400 Free Practice Questions to Pass the Exam

A progressive tax system is characterized by tax rates that increase as the taxpayer's income level rises. In this system, individuals who earn more are taxed at higher rates compared to those with lower incomes. This approach is designed to ensure that the tax burden is distributed more equitably, as those who have a greater ability to pay contribute a larger share of their income.

The rationale behind a progressive tax is that it aims to reduce income inequality and provide essential public services funded by the contributions of the more affluent members of society. For example, higher earners may face tax brackets that significantly increase their tax liability compared to lower earners, reflecting the ability of wealthier individuals to contribute more to government revenue.

This system contrasts with a regressive tax structure, where lower-income individuals pay a higher percentage of their income in taxes, or a flat tax where a single tax rate applies regardless of income level. A proportional tax system, while similar to a flat tax, typically refers to taxes that maintain a consistency in the overall rate relative to income, without varying as income rises.

By emphasizing the principle of fairness and the ability to pay, a progressive tax system aims to achieve a balance in taxation that can help address social welfare needs and fund government operations effectively.