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Chapter 14: Problem 6

Is a sales tax regressive, proportional, or progressive? Explain your answer.

Short Answer

Expert verified
A sales tax is considered regressive because it takes a larger percentage from low income earners compared to high income earners.

Step by step solution

01

Understanding the terms

Definitions: \n Regressive tax is a tax that takes a larger percentage from low-income earners compared to high-income earners. \n Proportional tax is a tax that takes the same percentage of income from everyone, regardless of how much they earn. \n Progressive tax is a tax that takes a larger percentage from high-income earners compared to low-income earners.
02

Understanding sales tax

A sales tax is a tax on items that people purchase. It is a set percentage that applies to all consumers, no matter what their income level is.
03

Examining sales tax in relation to income levels

Looking at how sales tax operates, it can be observed that it doesn't change based on the income level of the consumer. This means for high income earners, the impact of the sales tax is less noticeable compared to low income earners. The lower the income, the more significant the sales tax becomes. Therefore, a sales tax is considered to have a larger impact on those with lower income.
04

Conclusion

Based on the definitions and the way a sales tax works, it can be concluded that a sales tax is regressive. Although it is the same rate for everyone, in effect, it has a greater impact on those with lower incomes, which is the characteristic of a regressive tax.

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