What is a Regressive Tax?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

Regressive Tax is called applying a flat tax to a large percentage of low-income earners rather than high-income earners. The tax rate goes down as the taxable amount goes up in regressive taxation. It opposes progressive taxes, which rob higher-income earners of a larger percentage of their income. Recognize the different types of taxes in India, as well as the GST and VAT systems’ goals and restrictions.

Regressive Tax Definition, Examples

A tax is said to be regressive if it is imposed so that the tax rate drops as the amount subject to taxation rises. When describing a distributional impact on income or spending, the term “regressive” refers to the rate’s progression from high to low, causing the average tax rate to be higher than the marginal tax rate.

  • This tax places a greater burden on low-income earners than high-income earners, for whom the same dollar amount equals a much larger percentage of total earned income.
  • There is a progressive tax on income in the US and some other developed countries, but other taxes are collected uniformly, such as sales tax and user fees.
  • Although the United States has a progressive income tax system, meaning that those with higher incomes pay a higher percentage of taxes each year compared to those with lower incomes, they do pay certain levies that are considered regressive taxes.
  • Some of these include state sales taxes, user fees, and to some extent, property taxes.


What is a Regressive Tax?

Regressive tax burdens the poor more than the wealthy, and people with higher incomes pay less in taxes as a result. Simply put, a regressive tax takes a larger portion of the income from the poor or low-income earners as opposed to the high-income earners. Moreover, with a regressive tax, the income rises, and the tax burden decreases.

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