What is a regressive tax?

regressive tax can be defined as a tax that tends to increase the total percentage of income paid to those who have to pay the tax. On the other hand, those who have higher income pay less of their total income on taxed items. The tax can also be considered regressive when poorer people have to purchase more taxed items than richer people.

An example of a regressive tax can occur when people who are poorer live because they tend to do in poorly isolated homes. Due to poor isolation, they can pay more money for heating or cooling their homes and pay a higher tax on the purchase of electricity and gas. Similarly, a person with an old car, which is a gas guzzler, may have to consume more gas, paying a higher part of their gas income than a person who can afford to buy an energy -efficient car or a hybrid vehicle. Winter can live in a better insulated house, can be able to increase energy efficiency by investing in windows or laterAppliances with double spots and can buy a hybrid or at least newer vehicle. Thus, their energy accounts can be smaller and taxes are smaller.

put to put it simply, a person who earns $ 30,000 USD (USD) per year and drives an old car will have to buy more gas. Let's say they need 20 gallons of gas a week and the tax is $ 1.00 per gallon. For years, a person pays more than $ 1,000 only for gas taxes only, about 3% of the total income.

Let's say a similar person who earns $ 60,000 has a fuel -saving car. It buys 10 gallons of gas a week and pays just over $ 500 per year for total gas taxes. The percentage of revenue spent on gas tax every year is less than 1%, approximately 0.83%. You can see how this system is regressed in nature. The clergy person pays three times the income as richer people.

Although a person with a greater income decides to buy a car withLess fuel efficiency is likely that gas tax will still consume less of its income than for a poorer. If in our above example, a person earning $ 60,000 per year buys 20 gallons of gas per week, only 1.6% of the total gas income per year pays, approximately half of what the poorer pays.

In order to avoid regressive taxes of purchased items, many states cause certain types of things that are not taxable, especially food. This means that a poorer person does not pay taxes when he already consumes a large part of his / her income at the cost of food. Yet many items considered clamps in the house are still taxed, such as cleaning agents or paper products. Another way to hit people's regressive tax is when the time comes to pay things as a vehicle registration every year that can be really difficult for many people to pay.

Litm test then to define regressive tax is the percentage of income that a person must pay fromand tax. Few countries have regressive tax systems established. However, it has been found that people who make particularly high income may have access to certain tax shelters who are not available for people with low -middle income. Although such a system is progressive, tax gaps may eventually mean that those who give more in taxes than those who do less, leading to regression taxation.