A tax that varies based on ability to pay is called what?

A tax that varies based on an individual's ability to pay is known as a progressive tax. This system is designed to impose higher tax rates on those with greater income levels and lower rates on those with lower incomes. The fundamental principle behind a progressive tax is equity; it aims to distribute the tax burden according to the taxpayer's financial capability, which means that as one's income increases, so too does the percentage of income taken in taxes.

For example, in a progressive tax system, the initial portions of income may be taxed at lower rates, while higher incomes are taxed at higher rates, thereby ensuring that individuals who can afford to pay more do so. This structure helps to fund various public services and welfare programs that benefit society as a whole, particularly those who are less affluent.

In contrast, a flat tax imposes the same tax rate on all income levels, meaning that everyone pays the same proportion of their income regardless of how much they earn. A regressive tax, on the other hand, takes a larger percentage of income from those on lower earners compared to higher earners, as it typically applies to essentials that take a larger bite out of lower incomes. A proportional tax, similar to a flat tax, rates income the same regardless of the amount