Regressive Tax

Also found in: Financial, Wikipedia.

Regressive Tax

A tax with a rate that decreases as the taxpayer's income increases.

The result of a regressive tax is that the lower-income taxpayer pays a larger percentage of his or her income in taxes than does the higher-income taxpayer. The opposite of the regressive tax is the progressive tax. With progressive taxes, such as the federal Income Tax, the effective tax rates increase as the taxpayer's income increases. The proportionate tax rate, also referred to as a flat tax rate, remains constant as income rises. Under a proportionate tax system, higher-income individuals pay a greater amount of taxes than lower-income individuals pay, but the ratio is identical.

Consumption taxes, which are taxes on consumer goods and services, are usually regressive because individuals with lower incomes spend a larger portion of their income on these goods and services than higher-income individuals do. Some examples of these consumption taxes are the taxes on alcohol and tobacco, also referred to as "sin taxes."

Some taxes can be a combination of the different tax rates. For example, the Social Security tax is proportional until the taxpayer reaches the maximum income level. However, once the taxpayer's income reaches the maximum cap, all income earned over the cap is not taxed. The result is a regressive tax because the individual earning in excess of the maximum income level is paying a lower percentage of her or his income in taxes than the lower-income individual is paying.

Further readings

Congressional Research Service. 1990. Would a Social Security Tax Cut Increase Progressivity? CRS 90-235 RCO. Washington, D.C.: Congressional Research Service.

Howard, Jay M. 1992. "When Two Tax Theories Collide: A Look at the History and Future of Progressive and Proportionate Personal Income Taxation. Washburn Law Journal 32.

Samuels, Leslie B. 1995. "Remarks of Leslie B. Samuels." Federal Bar Association Section of Taxation Report 11.



Mentioned in ?
References in periodicals archive ?
But critics say it was a regressive tax policy that hampered growth instead of extending tax net to untaxed.
BADIN -- Greatly astonishing to know that the poor people and commonly deprived and underprivileged people of Pakistan were being burgled in the name of the tax by the regressive tax system of Pakistan.
It might also be an easier sell on both sides of the aisle because it will avoid accusations of regressive tax policy.
The country is suffering from regressive tax system as over seventy percent of the taxes are collected through indirect taxation, he said, adding that government should enforce a proper direct taxation system to force elite to pay taxes.
Corporation tax is a pointless, regressive tax which should be removed altogether.
I will say also, we will not increase VAT and I want you to ask Theresa May that question as well because if you remember last time the Tories promised no increase in VAT and then they increased it afterwards and then that's a regressive tax, that falls on some of the poorest and middle earners as well, so that's one guarantee we're giving.
Despite all their bluster once again it appears that Fianna Fail have no commitment to scrap this regressive tax.
It would be a highly regressive tax that would hit low-income Oregonians the hardest, hurt small businesses as well as larger Oregon companies, make it harder for the state to recruit new businesses and hamper the growth of existing companies.
Eliminating this regressive tax on women was a matter of fairness and I am proud to have signed this legislation to right that wrong," Governor Cuomo said.
It is only control of our own justice system that will allow us to address horrendous court fees that can see individuals and small businesses having to pay up to PS10,000 to issue a case (Russian oligarchs suing in London for many millions of pounds pay only PS10,000 - a regressive tax on justice that sees Welsh SMEs subsidising the more wealthy).
Murtaza Mughal noted that simplification of regressive tax regime would continue to discourage investment in the next fiscal, companies would continue to cry for refunds in a discouraging environment.