Question

Categorizing U.S. taxes

Which of the following taxes are regressive?
a) A sales tax that adds 5% to the sale of all items
b) The U.S. payroll tax (a constant tax on wages up to a certain amount, after which the marginal tax rate is 0%) is a tax.
c) The U.S. income tax

Answer 1

A

Step-by-step explanation:

A regressive tax is a tax system where the same tax rate is applied uniformly. As a result, those earning less income are taxed higher than those earning more income.

Sales tax is an example of a regressive tax.

If sales tax is 5%. Worker A earns $100 and worker B earns $1000. Both buy a good worth $50 before tax. the sales tax is worth $2.5.

The tax comprises $2,5 / 100 = 2.5% of worker A's income and $2,5 / $1000 = 0.025% of Worker B's income.

It can be seen that worker A who earns less income is taxed higher