Question : What is the difference between a progressive tax and a regressive tax?
Option 1: A progressive tax is higher for higher income earners, while a regressive tax is higher for lower income earners
Option 2: A progressive tax is higher for lower income earners, while a regressive tax is higher for higher income earners
Option 3: A progressive tax is a direct tax, while a regressive tax is an indirect tax
Option 4: A progressive tax is a tax on goods and services, while a regressive tax is a tax on income
Correct Answer: A progressive tax is higher for higher income earners, while a regressive tax is higher for lower income earners
Solution : The correct answer is (a) A progressive tax is higher for higher income earners, while a regressive tax is higher for lower income earners.
A progressive tax is a tax system in which the tax rate increases as the income level increases. In other words, individuals with higher incomes are subject to higher tax rates. The idea behind a progressive tax is that those who earn more can afford to contribute a higher proportion of their income to taxes, while those with lower incomes are taxed at lower rates to ensure a fair distribution of the tax burden.
On the other hand, a regressive tax is a tax system in which the tax rate decreases as the income level increases. This means that individuals with lower incomes pay a higher proportion of their income in taxes compared to those with higher incomes. In a regressive tax system, the tax burden disproportionately falls on lower-income earners, which can be seen as less equitable compared to a progressive tax system.
