Regressive Tax

AAA

DEFINITION of 'Regressive Tax'

A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder.

INVESTOPEDIA EXPLAINS 'Regressive Tax'

Some examples include gas tax and cigarette tax. For example, if a person has $10 of income and must pay $1 of tax on a package of cigarettes, this represents 10% of the person's income. However, if the person has $20 of income, this $1 tax only represents 5% of that person's income.

Sales taxes that apply to essentials are generally considered to be regressive as well because expenses for food, clothing and shelter tend to make up a higher percentage of a lower income consumer's overall budget. In this case, even though the tax may be uniform (such as 7% sales tax), lower income consumers are more affected by it because they are less able to afford it.

RELATED TERMS
  1. Cascade Tax

    A tax that is levied on a good at each stage of the production ...
  2. Ability-To-Pay Taxation

    Taxation in the form of a progressive tax. The ability-to-pay ...
  3. Tax Freedom Day

    The day that the average American has earned enough money (in ...
  4. Flat Tax

    A system that applies the same tax rate to every taxpayer regardless ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. Get A 6-Month Tax Extension
    Taxes

    Get A 6-Month Tax Extension

  3. 10 Money-Saving Year-End Tax Tips
    Taxes

    10 Money-Saving Year-End Tax Tips

  4. Capital Gains Tax Cuts For Middle Income ...
    Taxes

    Capital Gains Tax Cuts For Middle Income ...

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center