A tax where the marginal tax rate increases as income rises is a(n):

• A. lump-sum tax
• B. progressive tax
• C. regressive tax
• D. proportional tax

Answer: (B)

Verified step by step guidance

1. Understand the definition of a marginal tax rate: it is the rate of tax applied to each additional dollar of income earned.
2. Recall the characteristics of different types of taxes: a lump-sum tax is a fixed amount regardless of income; a proportional tax charges the same percentage of income at all levels; a regressive tax imposes a lower tax rate as income increases.
3. Identify that a tax where the marginal tax rate increases as income rises means higher income earners pay a higher percentage on their additional income.
4. Recognize that this description matches a progressive tax, where the tax rate increases with income.
5. Conclude that the tax described is a progressive tax because its marginal tax rate rises with income.