Question : What is the difference between a progressive tax and a regressive tax?
Option 1: A progressive tax is a tax that increases as income increases, while a regressive tax is a tax that decreases as income increases
Option 2: A progressive tax is a tax that decreases as income increases, while a regressive tax is a tax that increases as income increases
Option 3: A progressive tax is a tax that is based on the value of a good or service, while a regressive tax is a tax that is based on the quantity of a good or service
Option 4: A progressive tax is a tax that is based on the quantity of a good or service, while a regressive tax is a tax that is based on the value of a good or service
Correct Answer: A progressive tax is a tax that increases as income increases, while a regressive tax is a tax that decreases as income increases
Solution : The correct answer is (a) A progressive tax is a tax that increases as income increases, while a regressive tax is a tax that decreases as income increases.
In a progressive tax system, the tax rate increases as a taxpayer's income rises. This means that individuals with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes. The purpose of a progressive tax system is to distribute the tax burden more equitably, with higher-income individuals contributing a larger proportion of their income.
In contrast, a regressive tax system is one where the tax burden decreases as income increases. This means that individuals with lower incomes pay a higher percentage of their income in taxes compared to those with higher incomes. In a regressive tax system, the tax rate tends to be higher for low-income individuals or for certain goods or services that are consumed disproportionately by lower-income households.
