A system in which tax rates increase as the taxable base amount increases. Higher income earners pay a larger percentage of their income in taxes compared to lower income earners. For example, a person earning $50,000 annually might be taxed at 15%, while someone earning $500,000 annually might be taxed at 35%. It’s vital to note that, typically, the higher rate only applies to the income falling within that specific bracket.
This type of system is often viewed as a mechanism for income redistribution, potentially reducing income inequality. It can fund essential public services and infrastructure by leveraging the higher earning power of a segment of the population. Throughout history, various societies have implemented similar structures to address wealth disparity and finance governmental operations. However, debates often arise concerning the optimal rate structure and its potential impact on economic incentives.