Question

Identify whether the scenarios below are examples of regressive or progressive taxes.

A sales tax on food and clothing. ____________
An additional sales tax on cars bought for over $50,000. ____________
A flat rate income tax of 20%, with no additional tax being paid on earnings above $1,000,000. ______________
An income tax system using tax brackets, where the percentage tax rate increases with income. ________________
A fixed poll tax on citizens and residents. ____________

Answer 1

a. A sales tax on food and clothing is an example of a regressive tax - Under this system of taxation, the tax rate diminishes as the taxable amount increases.

b. An additional sales tax on cars bought for over 50,000 is an example of a progressive tax - A progressive tax is a tax in which the tax rate increases as the taxable amount increases.

c. A flat rate income tax of 20%, with no additional tax being paid on earnings above $1,000,000 is an example of Regressive tax. The tax levied on income earned above a certain level will be the same, that is, as the income increases, the tax rate is less.

d. The system used is an example of progressive tax. This is as per the definition of the progressive tax, a positive relation between the income earned and the tax rate.

e. A fixed poll tax on citizens and residents is an example of Regressive tax. A poll tax or a head tax is a fixed rate levied on the citizens and residents irrespective of the income level.