Final answer:
In a progressive tax system, both the marginal tax rate and the taxes paid rise as a taxpayer's income increases. This system results in those with higher earnings paying more taxes, with each income bracket being taxed at its specific rate and higher rates applying only to income exceeding each bracket's threshold.
Step-by-step explanation:
Under progressive taxation, a taxpayer's marginal tax rate and taxes paid increase as their tax base grows. A progressive tax system utilizes marginal tax rates that rise with higher levels of income. For instance, in a progressive tax system like the United States', there are several tax brackets with increasing rates. As one's income increases and enters a higher tax bracket, the marginal tax rate—the percentage at which the next dollar of income will be taxed—also increases. This does not affect the tax rate of the income that fell under the lower bracket, ensuring that taxpayers with higher incomes contribute a larger portion of their earnings. As an example, if a person earns more than the threshold for the 10% tax bracket, only the income exceeding that threshold is taxed at the next higher percentage, and so on.
Let’s consider the example of a single taxpayer earning $15,000 a year. The first $11,000 would be taxed at a 10% rate, and only the additional $4,000 (amount over $11,000) would be taxed at the next higher rate of 12%. This tiered system illustrates the progressive nature of the tax system, where the marginal tax rate applicable to each additional dollar earned increases with the tax bracket.