An economy operates a tax system where the total income tax liability, TTT, for an individual with an annual income YYY (where Y>£12,000Y > £12,000Y>£12,000) is given by the formula:
T=0.40Y−3,000 T = 0.40Y - 3,000 T=0.40Y−3,000Which one of the following statements correctly describes this tax system for income levels above £12,000£12,000£12,000?
The tax system is proportional because the marginal rate of tax remains constant at 40%40\%40%.
The tax system is regressive because the average rate of tax decreases as income increases.
The tax system is progressive because the marginal rate of tax is higher than the average rate of tax, causing the average rate of tax to rise as income increases.
The tax system is progressive because the marginal rate of tax rises continuously as income increases.
