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Regressive Tax

A regressive tax is a tax system in which the tax rate decreases as the taxable amount increases, meaning that lower-income individuals bear a higher tax burden relative to their income compared to higher-income individuals. Examples of regressive taxes include sales taxes and excise taxes, where everyone pays the same rate regardless of income level. These taxes disproportionately affect lower-income individuals because they spend a larger portion of their income on taxed goods and services.

Example

A 5% sales tax on groceries is considered regressive because it takes up a larger percentage of income from low-income families compared to high-income families.

Key points

• A tax where lower-income individuals pay a higher percentage of their income than higher-income individuals.

• Common examples include sales taxes and excise taxes.

• Disproportionately affects lower-income groups.

Quick Answers to Curious Questions

Sales taxes apply uniformly to all consumers, but lower-income individuals spend a larger proportion of their income on taxed goods, leading to a higher tax burden.

Regressive taxes can exacerbate income inequality by imposing a heavier financial burden on lower-income individuals compared to wealthier ones.

Progressive taxes, such as income taxes, where higher earners pay a larger percentage of their income, are considered more equitable.