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Regressive Tax Definition
Examples, Advantages, and Disadvantages
What is a Regressive Tax
Key Points
Examples of Regressive Tax
1. Sales Tax
2. Property Tax
3. Excise Tax
4. Tariff
5. Government Fees
Advantages of Regressive Tax
1. Encourages people to earn more
2. Higher Revenues
3. Increases Savings and Investment
4. Simplicity
5. Reduces a ‘Brain Drain’
Disadvantages of Regressive Tax
1. Inequality
2. Higher Prices
3. Reduces Choice
4. Political Unrest
Related Topics
General FAQs on Regressive Tax
Further Reading

Content: The regressive tax contrasts with a progressive tax which increases alongside income. So the higher the individual’s income, the higher percentage of their salary they pay in taxes. Key Points
A regressive tax is where low income individuals pay a higher percentage of their incomes in taxes, than richer individuals. A flat tax can also be regressive, as the rich and the poor pay the same value, yet as a percentage of their income, the rich pay far less. When a country adopts a regressive tax, it falls disproportionately on the poor, which can lead to inequality and political unrest. It is very common to see in the news billionaires that have only paid 5 percent in taxes, whilst those on low incomes shell out over and above 20 percent. We may see this as a regressive tax, but it is not. Instead, the tax system has become so complicated and diverse that billionaires are able to take advantage of loopholes such as the loss carryover. This allows firms and individuals to write down their profits from one year to another, thereby reducing the tax to be paid. There are many other clever ways that the rich reduce their effective tax rate, but the actual tax rates are in fact progressive.