In a progressive tax system, what occurs in relation to marginal and average tax rates?

In a progressive tax system, the design is such that individuals with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes. This structure typically involves increasing marginal tax rates, meaning that as a person's income increases, each additional dollar earned is taxed at a higher rate.

The marginal tax rate refers to the rate applied to the next dollar of income, while the average tax rate calculates the total taxes paid as a percentage of total income. In a progressive tax system, because the highest income brackets face higher tax rates, the marginal tax rate for individuals in these brackets often surpasses their average tax rate. This occurs because the average tax rate is influenced by the tax rates applied to lower income brackets, which are taxed at lower rates. Consequently, the average tax rate tends to be lower than the highest marginal tax rates applied to the top segments of income.

Thus, it accurately depicts that in a progressive system, the marginal tax rate is generally higher than the average tax rate, as higher increments of income are taxed at elevated rates.