A Progressive Tax is one in which :

Question

Accepted Answer

The correct option is 3:
A progressive tax system is founded on the principle of ability-to-pay, meaning those with higher incomes contribute a larger proportion of their income in taxes. Therefore, as an individual's income increases, the rate at which they are taxed (the tax payment as a percentage of income) also rises. This mechanism is designed to reduce income inequality by redistributing wealth, as the marginal tax rate—the rate applied to the next dollar of income—is greater than the average tax rate, and both increase with income. The tax brackets within such a system ensure that each successive portion of higher income is taxed at a higher rate.

The incorrect option is 1:
The tax payment as a percentage of income falls. This describes a regressive tax. In a regressive system, the tax burden shifts disproportionately to lower-income individuals because the tax rate decreases as the taxpayer's income increases.

The incorrect option is 2:
The tax payment as a percentage of income is constant. This describes a proportional tax, often called a flat tax. Under this system, everyone pays the same tax rate, regardless of their income level.

The incorrect option is 4:
There is no linkage between income and tax payment. This statement describes a specific type of lump-sum tax or an independent tax where the amount paid is fixed, or the relationship is non-existent, meaning it is neither progressive, regressive, nor proportional. In real-world tax policy, especially income taxation, a fundamental link always exists.