The taxes that are normally believed to be progressive include individual income taxes and estate taxes. Income taxes that are categorically progressive, however, might become less so for the upper-income class—in particular if a taxpayer is permitted to reduce his tax base by declaring deductions or by removing some certain income parts from his taxable income. Proportional tax rates which are applied to lower-income categories can also be more progressive if such personal exemptions are made.

Income measured over the period of a given year might not definitely come up with the most accurate measure of taxpaying status. For example, transitory rises in income might be saved, and within temporary declines in income a taxpayer may decide to pay for consumption by reducing savings. So, if taxation is made comparable with “permanent income,” it will be less regressive (or more progressive) than when it is held in comparison with annual income.

Sales taxes and excises (with the exception of luxuries) are mostly regressive, because the portion of one’s income consumed or spent on a specific good decreases as the amount of personal income increases. Poll taxes (also called head taxes), calculated as a fixed amount per capita, clearly are regressive.

It is complicated to determine corporate income taxes and taxes on business as progressive, regressive, or proportionate, because of the lack of certainty regarding the ability of businesses to shift their tax expenses (see below Shifting and incidence). This difficulty of determining who bears the tax burden depends essentially on whether a national or a subnational (that is, provincial or state) tax is being determined.

In considering the economic purposes of taxation, it is important to differentiate between differing ideas of tax rates. The statutory rates include those specified in legislation; generally speaking these are marginal rates, but in some cases they are mean rates. Marginal income tax rates denote the fraction of incremental income that is demanded by taxation when income is increased by one dollar. Ergo, if tax onus grows by 45 cents when income grows by one dollar, the marginal tax rate is 45 percent. Income tax laws usually contain graduated marginal rates—i.e., rates that rise as income increases. Heavy analysis of marginal tax rates should review provisions in addition to the formal statutory rate structure. If, for example, a particular tax credit (reduction in tax) declines by 20 cents for each one-dollar growth in income, the marginal rate is 20 percentage points more than specified by the statutory rates. Since marginal rates display how after-tax income moves in response to changes in before-tax income, they are the relevant ones for considering incentive effects of taxation. It is even more complicated to understand the marginal effective tax rate applicable to income from business and capital, since it may rely on considerations including the structure of depreciation allowances, the deductibility of interest, and the provisions for inflation adjustment. A basic economic theorem determines that the marginal effective tax rate in income from capital is zero under a consumption-based tax.

Average income tax rates display the portion of total income that is demanded in taxation. The pattern of average rates is the one that is in consideration for judging the distributional equity of taxation. Under a progressive income tax the average income tax rate grows with income. Average income tax rates usually increase with income, both because personal allowances are provided for the taxpayer and dependents and also due to that marginal tax rates are graduated; on the other hand, preferential treatment of income received for the most part by high-income households may dwarf these effects, forcing regressivity, as indicated by average tax rates that lower as income grows.

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