Question : What is a regressive tax?
Option 1: A tax system where the poor pay a higher percentage of their income than the rich
Option 2: A tax system where everyone pays
Option 3: A tax which tends to decrease as income increases
Option 4: A tax system where the rich pay a higher percentage of their income than the poor
Correct Answer: A tax system where the poor pay a higher percentage of their income than the rich
Solution : The correct answer is (a). A regressive tax is a tax system where the poor pay a higher percentage of their income than the rich.
In a regressive tax system, the tax rate decreases as income increases. This means that individuals with lower incomes contribute a higher proportion of their income towards taxes compared to those with higher incomes. As a result, regressive taxes tend to have a greater impact on individuals with lower incomes and can lead to a higher tax burden for them relative to their income.
An example of a regressive tax is a sales tax that is applied uniformly to the purchase of goods and services. Since individuals with lower incomes typically spend a larger proportion of their income on essential goods and services, a flat sales tax rate would have a relatively larger impact on them compared to individuals with higher incomes.
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Question : What is a flat tax?