What is a Regressive Tax Rate?

Definition of Regressive Tax Rate:

A regressive tax is a tax which burden falls more heavily on the poor than reach because the tax rate decreases as the income increases. A regressive tax is the opposite of a progressive tax.

Under this system, the tax rate reduces as the taxable amount increases. There is an inverse relationship between the tax rate and taxable income.

Advanatges of Regressive Tax:

  • Regressive taxes encourage savings and investment to the reach people from reduced taxes.
  • Regressive tax system increase net revenue of the government.
  • Due to flate rate of tax, its calculation is easier than progressive tax.
  • It reduces brain drain

Disadvantages of Regressive:

  • Poor people seriously suffer for the system.
  • Principle of taxable capacity totally ignored.
  • Increases the inequalities of income and wealth in the soceity.

Example of Regressive Tax:

Some examples of regressive tax include:

  • Sales tax
  • Property tax
  • Excise tax
  • Tarrif
  • Government feers, etc.

For another example, tax on total income of $ 100,000 is 10% but on $ 500,000 the rate is 5%. Hence, the tax will decrease more than proportionately.

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