Question

Which of the following statements explains why the sales tax is considered regressive?

a. A sales tax on food is a regressive tax.

b. A flat tax is also a proportional tax.

c. Social Security is a regressive tax.

d. All the above are true statements.

Answer 1

A sales tax is considered regressive because it takes a larger proportion of income from individuals with lower incomes compared to those with higher incomes.

Step-by-step explanation:

A sales tax is considered regressive because it takes a larger proportion of income from individuals with lower incomes compared to those with higher incomes. This is because individuals with lower incomes generally spend a larger portion of their income on goods subject to sales tax, such as food and other basic necessities. On the other hand, individuals with higher incomes can afford to save a larger portion of their income or spend it on goods not subject to sales tax, resulting in a smaller proportion of their income going towards sales tax.

For example, if the sales tax rate is 10%, a person with a low income of $10,000 would have to spend $1,000 on taxable goods, which is 10% of their total income. However, a person with a high income of $100,000 would only have to spend $10,000 on taxable goods, which is only 10% of their total income.

Therefore, option a. A sales tax on food is a regressive tax, is the correct statement.