"Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate. Combined Distributional Impact of Imposed and Threatened U.S.A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. tariffs under the Trump administration (as of December 2018) shows that lower- and middle-income households experience relatively larger drops in after-tax income. This occurs either by raising prices or reducing wage and capital income.Īnalysis of imposed and threatened U.S. Tariffs ultimately fall on the factors of production and reduce taxpayer labor and capital income. The distributional effects of a tariff (the economic burden it places on households across income levels) tend to be regressive, burdening lower-income households more than higher-income households. Households in the lowest one-fifth by income faced an average federal excise tax rate that is nine times greater than the average excise tax rate faced by the top 1 percent of households. How Regressive Are Excise Taxes and Tariffs?Įxcise taxes are particularly regressive. They will pay the same level of property taxes regardless of their income. The same can be true of two neighbors with similar property values and property tax burdens. These taxes include most sales taxes, payroll taxes, excise taxes, and property taxes.īecause the same rate of tax applies regardless of one’s income, a lower-income individual may face a higher tax burden than a higher-income individual with the same amount of consumption.įor example, if two individuals who make $20,000 and $40,000 spend $100 on clothing with a 5 percent sales tax rate, the lower-earner will be paying more taxes as a share of their income than the higher-earner. A regressive tax is often flat in nature, meaning that the same rate of tax applies (generally) regardless of income. The burden of a tax results from both the design of a tax and the true economic burden of a tax. What Are Some Examples of a Regressive Tax? Low-income taxpayers pay a disproportionate share of the tax burden, while middle- and high-income taxpayers shoulder a relatively small tax burden. A regressive tax is one where the average tax burden decreases with income.
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