Regressive Tax
A type of tax that has a higher rate on persons of lower incomes than persons of higher incomes. An example of this is a sales tax. With a sales tax of 8%, a person who is earning $10,000 per year will usually spend almost everything they earn (with not much room for savings), so they will be taxed $800 (8% of $10,000). However, a person who earns $100,000 and puts $10,000 into savings will only spend $90,000. 8% tax on $90,000 is $7,200 – only 7.2% of this person’s total income.
Related Lessons
