Question

Under a regressive tax rate system, the applicable tax rate:

a. increases as the tax base grows larger.
b. remains unchanged irrespective of the level of tax base.
c. best reflects the capacity of the taxpayer to pay.
d. decreases as the tax base grows larger.

Answer 1

In a regressive tax rate system, the tax rate decreases as the tax base grows, meaning higher earners pay a smaller percentage of their income compared to lower earners.

Step-by-step explanation:

Under a regressive tax rate system, the applicable tax rate decreases as the tax base grows larger. This means that people with higher incomes pay a smaller percentage of their income in tax than those with lower incomes. An example of a regressive tax includes excise taxes on goods such as alcohol, tobacco, and gasoline. While the actual amount spent on these goods may increase with income, it does not typically keep pace with the rate of income growth, resulting in a lower proportion of income being paid in taxes by higher earners.