Final answer:
Paying lower amounts of tax as income increases, as seen in the given scenario, exemplifies a regressive tax system, where higher earners pay a smaller percentage of their income in taxes.
Step-by-step explanation:
Paying a tax of $200 on an income of $1,000, a tax of $150 on an income of $2,000, and a tax of $120 on an income of $3,000 is an example of a regressive tax. In a regressive tax system, individuals with higher incomes pay a smaller share of their income in taxes compared to those with lower incomes. As income increases in this scenario, the actual tax paid not only decreases in amount but also represents a smaller percentage of the income, which is the hallmark of regressive taxation.
It's important to distinguish this from progressive taxation, where the rate of taxation increases for higher earners, or proportional taxation (also known as a flat tax), where the tax rate is the same for every income level.