Question

A regressive tax is BEST defined as a rate of tax A) that falls as income rises. B) that rises as income rises. C) that is constant as income rises. D) that is applied to corporate incomes.

Answer 1

A.



A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases

Answer 2

Answer:

The correct answer is letter "A".

A regressive tax is BEST defined as a rate of tax that falls as income rises.

Explanation:

Within economic theory there are two concepts to classify taxes, according to their relationship with the taxpayer's income: progressive and regressive taxes.

Regressive taxes are collected in a smaller percentage as income increases. They represent a greater burden for individuals of low socioeconomic status. In other words, regressive taxes are those that affect the poor relatively more than the rich. Therefore, they do not have a redistribution effect of wealth. On the contrary, if they are very high they can accentuate inequality in a society.

To understand the operation of this type of tax, it is important to keep in mind that citizens who earn less are required to spend a greater part of their salary, mainly on essential goods such as food. That is, their savings are less or non-existent.