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.

VIDEO

Loading the player...
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. Income Tax

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

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

    A tax that takes a larger percentage from the income of high-income ...
  6. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
RELATED FAQS
  1. What is the difference between a regressive tax versus a progressive tax?

    A progressive tax is one that increases along with an individual's ability to pay the tax, while a regressive tax doesn't ... Read Full Answer >>
  2. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  3. What are some of the arguments in favor of a value-added tax (VAT)?

    A value-added tax (VAT) offers several advantages over an income tax or traditional sales tax. It raises needed government ... Read Full Answer >>
  4. How is cost basis calculated on an inherited asset?

    Typically, the cost basis on inherited assets is the fair market value as of the time of the decedent's death or actual transfer ... Read Full Answer >>
  5. How does the role of Medicare/Medicaid affect the drugs sector in the U.S.?

    Medicare and Medicaid have enormous influence on the pharmaceutical, or drugs, sector in the United States. For instance, ... Read Full Answer >>
  6. In what instances does overhead qualify for certain tax allowances?

    Businesses are just as keen as anyone else to keep their tax burdens low by any means possible. Overhead expenses often qualify ... Read Full Answer >>
Related Articles
  1. Economics

    What's a Regressive Tax?

    A regressive tax is a levy in a tax system where the tax rate does not change based on the level of income.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Taxes

    Get A 6-Month Tax Extension

    Discover how to get some extra time from the IRS, without paying for the privilege.
  4. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  5. Taxes

    Capital Gains Tax Cuts For Middle Income Investors

    Find out how TIPRA plans to slash taxes for those in the 10-15% tax bracket.
  6. Investing

    Who Supports Donald Trump's Campaign?

    Explore the common characteristics among voters who prefer Donald Trump for the 2016 election, including youth, modest incomes and lack of education.
  7. Investing

    Can Donald Trump Really Win the Presidency?

    Understand why demographic trends and his lack of broad appeal are likely to keep Donald Trump from being a serious contender for the presidency.
  8. Taxes

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
  9. Economics

    What Does Infrastructure Mean?

    Examples of infrastructure include mass transit, communication, sewage, water and electric systems, plus roads, bridges and tunnels.
  10. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!