Question

1. Briefly describe what is meant by a regressive tax, a progressive tax, and a proportional tax, and give an example of each.

Answer 1

Regressive tax :Tax as a percentage of the value of asset that a taxpayer purchases or owns .A tax that takes a larger percentage of income from lower income groups than from higher income groups.This type of tax has no correlation with an individual earnings or income level.

Example :Real estate property taxes,excise tax on consumables ,sin taxes (tax on unhealthy food like alcohol).

Progressive tax:A progressive tax is a tax in which the tax rate increases as the taxable base amount  increases .Tax in progressive system are based on the taxable amount of an individual's income. So high income earners pay more than lower income earners.

Example :Federal income tax

Proportional Tax:A proportional tax is a tax imposed so that the tax rate is fixed with no change as the taxable base amount increase or decrease.A tax that takes the same percentage of income from all income groups.It means to create equality between marginal tax rates and average tax rates paid

Example :per capita taxes,gross receipts taxes and occupational taxes .