Regressive Tax Examples: Social Security, Sales Tax and More

📚 Quick Study Guide

• 💰 A regressive tax takes a larger percentage of income from low-income earners than from high-income earners.
• 🛒 Sales tax is a classic example: everyone pays the same percentage, but it's a bigger chunk of a smaller paycheck for those with less income.
• 👴 Social Security taxes are also regressive because they only apply up to a certain income level.
• ⛽ Excise taxes on things like gasoline can be regressive as well, as lower-income individuals may spend a larger proportion of their income on these necessities.
• 📊 Regressivity is often measured by comparing the tax burden as a percentage of income across different income groups.

Practice Quiz

1. Which of the following is a key characteristic of a regressive tax?
   1. It takes a smaller percentage of income from low-income earners.
   2. It takes the same percentage of income from all earners.
   3. It takes a larger percentage of income from low-income earners.
   4. It only applies to high-income earners.
2. Why is sales tax often considered a regressive tax?
   1. It is only applied to luxury goods.
   2. Lower-income individuals spend a larger proportion of their income on taxable goods.
   3. Higher-income individuals spend a larger proportion of their income on taxable goods.
   4. It is adjusted based on income level.
3. Social Security taxes are regressive because:
   1. They are not applied to investment income.
   2. They are only applied up to a certain income level.
   3. They are a flat tax on all income.
   4. They are progressive.
4. Which of the following is an example of an excise tax that can be regressive?
   1. Tax on yachts.
   2. Tax on corporate profits.
   3. Tax on gasoline.
   4. Tax on stock trades.
5. How is the regressivity of a tax typically measured?
   1. By comparing the tax revenue generated.
   2. By comparing the tax burden as a percentage of income across different income groups.
   3. By comparing the tax rate to the inflation rate.
   4. By comparing the tax rate to the GDP growth rate.
6. A regressive tax system may lead to:
   1. Increased income equality.
   2. Decreased burden on low-income earners.
   3. Increased burden on low-income earners.
   4. Equal distribution of wealth.
7. Which of the following strategies could potentially offset the regressive effects of a sales tax?
   1. Increasing the sales tax rate.
   2. Exempting essential goods from sales tax.
   3. Applying sales tax to all goods and services.
   4. Reducing income taxes for high-income earners.