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. Flat Tax

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

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

    The rate at which an individual is taxed. Tax brackets are set ...
  6. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

  2. Taxes

    Get A 6-Month Tax Extension

  3. Taxes

    10 Money-Saving Year-End Tax Tips

  4. Taxes

    Capital Gains Tax Cuts For Middle Income ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. 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 ...
  6. Debit Spread

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