# Regressive Tax: Definition and Types of Taxes That Are Regressive

![Regressive Tax: A tax that is applied uniformly regardless of income.](https://www.investopedia.com/thmb/FPi25sA5L3ghVrHPpvURprLH-hg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/regressivetax.asp-final-28ca4ccf48fa48689f0907c7db951496.png)

*— Investopedia / Zoe Hansen*

> **Definition**
>
> A regressive tax imposes a uniform rate regardless of income, leading to higher financial strain on low-income individuals compared to those with higher incomes. Unlike a progressive tax system where tax rates increase with income, regressive taxes like sales, excise, and payroll taxes affect everyone equally but take a larger portion from those who earn less. This guide explores the nuances and implications of regressive taxes and exemplifies how they influence economic equity.

## What Is a Regressive Tax?

A regressive tax is one in which low-income owners pay a larger percentage of income than middle- and high-income earners. The tax burden decreases with regressive taxes as income rises. This is in contrast to a progressive tax that takes a larger percentage from high-income earners.

Common forms of regressive tax include sales tax, excise tax, and payroll tax.

### Key Takeaways

*   A regressive tax is applied uniformly, placing a larger burden on low-income earners as it constitutes a higher percentage of their income.  
    
*   Common examples of regressive taxes include sales taxes, excise taxes, tariffs, and user fees.
*   In contrast to regressive taxes, progressive taxes increase the tax rate as the payer’s income increases.  
    
*   Proportional taxes, unlike regressive or progressive taxes, charge everyone the same percentage of their income.  
    
*   In a regressive tax system, the same monetary amount is levied from all individuals, leading to a greater financial impact on those with lower incomes.

## How Regressive Taxes Impact Low-Income Earners

[Taxes](https://www.investopedia.com/terms/t/taxes.asp#toc-types-of-taxes) are contributions made by individuals and corporations to governments. They come in many forms and are levied at different levels including federal, state/provincial, regional, and local. Types of taxes vary but they tend to fall into one of three distinct categories: progressive or [ability to pay taxation](https://www.investopedia.com/terms/a/ability-to-pay-taxation.asp), proportional taxes, and regressive taxes.

Regressive taxes affect people with low incomes more severely than those with higher incomes because they're applied uniformly to all situations regardless of the [taxpayer](https://www.investopedia.com/terms/t/taxpayer.asp). It may be fair in some instances to tax everyone at the same rate but it's seen as unjust in other cases. Most income tax systems employ a progressive schedule that taxes high-income earners at a higher percentage rate than low-income earners. Other types of taxes are uniformly applied.

The United States has a progressive [income tax](https://www.investopedia.com/terms/i/incometax.asp) system. Earners with higher incomes pay a higher percentage of taxes on their top dollars compared to those with lower incomes. Taxpayers do pay certain levies that are considered to be regressive taxes, however. Some of these include state sales taxes, user fees, and property taxes to some degree.

> **Important**
>
> A regressive tax system is more common in less developed countries where there may be a greater number of people in the same income bracket, reducing the negative impact of the regressive tax.

## Common Examples of Regressive Taxes

Taxes come in various shapes and sizes. These are some of the most common types of regressive taxes that taxpayers must pay.

### Sales Taxes

Governments apply [sales tax](https://www.investopedia.com/terms/s/salestax.asp) uniformly to all consumers based on what they buy. The tax may be uniform such as 7% on all purchases but lower-income consumers are more affected by that 7%. Let's say two individuals each purchase $100 of clothing per week. Each pays $7 in tax on their retail purchase.

*   The first individual earns $2,000 per week so the sales [tax rate](https://www.investopedia.com/terms/t/taxrate.asp) on their purchase works out to 0.35% of their income.
*   The other individual earns $320 per week so their clothing sales tax works out to 2.2% of their income.

The tax is the same rate in both cases but the person with the lower income pays a higher percentage of their income, making the tax regressive.

### Excise Taxes

[Excise taxes](https://www.investopedia.com/terms/e/excisetax.asp) are levied on specific goods such as tobacco, alcohol, gasoline, and luxury items. They're often added to the price of the goods and they're paid by the consumer at the point of sale.

An excise tax can be regressive if it's the same for everyone regardless of income. This is especially true for products consumed by low-income individuals because these earners are likely to spend a larger proportion of their income on taxed goods than high-income earners. An excise tax on cheap beer is regressive considering how consumer demands may play a factor.

Excise taxes can also be designed to be progressive. The tax would have a greater impact on high-income earners who are more likely to purchase [luxury items](https://www.investopedia.com/terms/l/luxury-item.asp) if the tax rate on luxury items is higher than the tax rate on necessities like food or clothing. The tax is progressive in this case because the low-income individual wouldn't be likely to ever purchase the luxury good.

### Tariffs

[Tariffs](https://www.investopedia.com/terms/t/tariff.asp) can be considered regressive taxes when they're applied uniformly on all imported goods regardless of their price or the income of the people who buy them.

Lower-income individuals tend to spend a larger proportion of their income on imported goods than households with higher incomes. This may also depend on consumer preferences, however, and may be progressive for tariffs placed on more luxurious goods.

### User Fees

[User fees](https://www.investopedia.com/terms/u/user-fee.asp) levied by the government are another form of regressive tax. These fees include admission to government-funded museums and state parks, costs for driver's licenses and identification cards, and toll fees for roads and bridges.

If two families travel to the Grand Canyon National Park and pay a $30 admission fee, the family with the higher income pays a lower percentage of its income to access the park, while the family with the lower income pays a higher percentage. The fee is the same amount but it constitutes a more significant burden on the family with the lower income, again making it a regressive tax.

### Property Taxes

[Property taxes](https://www.investopedia.com/terms/p/propertytax.asp) are fundamentally regressive. Two individuals would pay the same amount of property tax regardless of their incomes if they owned properties with the same values.

They're not purely regressive in practice, however, because they're based on the value of the [property](https://www.investopedia.com/terms/p/property.asp). It's generally thought that lower-income earners live in less expensive homes, partially indexing property taxes to income.

### Flat Taxes

The phrase [flat tax](https://www.investopedia.com/ask/answers/042815/progressive-tax-more-fair-flat-tax.asp) refers to a taxation system in which the government taxes all income at the same percentage regardless of earnings. There are no special deductions or credits under a flat tax. Each individual pays a set percentage that's levied on all income so everyone effectively pays the same rate.

The tax burden on those with low incomes is often heavy compared to those with higher incomes, even at the same rate. The proportion of income that's taxed is higher for low-income earners. Flat taxes may be considered regressive as a result.

### Payroll Taxes

Social Security and Medicare taxes can be considered regressive because they're typically levied as a flat tax rate on wages and salaries up to a certain limit. Everyone pays the same percentage of their earnings in payroll taxes regardless of their income level.

[Social Security](https://www.investopedia.com/terms/s/socialsecurity.asp) taxes are levied at a flat rate of 6.2% on wages and salaries up to $168,600 in 2024. Someone who earns $50,000 a year pays the same percentage of their income in payroll taxes as someone who earns $100,000 a year.

### Sin Taxes

Taxes that are imposed and collected on products that are deemed to be harmful to society are referred to as [sin taxes](https://www.investopedia.com/terms/s/sin_tax.asp). They're added to the prices of goods like alcohol and tobacco to dissuade people from purchasing and using them. The [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) considers these taxes to be regressive because they're more burdensome on low-income earners rather than their high-income counterparts.

> **Fast Fact**
>
> Corporate taxes are theoretically regressive because companies may be able to reduce their tax liability down to $0. Some of the highest-earning companies would be able to avoid all federal taxes if this is the case.

## Comparing Regressive, Progressive, and Proportional Tax Systems

Regressive, progressive, and proportional taxes are used by governments to generate [revenue](https://www.investopedia.com/terms/r/revenue.asp). Each type of tax is different in how it's calculated and the people it affects, primarily depending on different income levels.

### Regressive and Progressive Taxes

A regressive tax system is one in which the rate decreases as the taxpayer's income increases. A [progressive tax](https://www.investopedia.com/terms/p/progressivetax.asp) system is one in which the tax rate increases as the taxpayer's income increases.

People with higher incomes pay a higher percentage of their income in taxes than those with lower incomes in a progressive system. Progressive taxes include income taxes and [estate taxes](https://www.investopedia.com/terms/e/estatetax.asp).

The argument against progressive taxes is that individuals shouldn't be penalized for having higher incomes and pay for public benefits that a less wealthy individual may be more likely to utilize. This system may also disincentivize innovation and [capitalism](https://www.investopedia.com/terms/c/capitalism.asp) because there's less motivation for success.

The argument for progressive taxes is that individuals with lower incomes shouldn't pay higher effective rates simply because they don't have the same income as someone else.

### Proportional Tax

These two contrasting tax systems meet in the middle with a [proportional tax](https://www.investopedia.com/terms/p/proportionaltax.asp) system. This tax is one where everyone pays the same amount in proportion to their income regardless of how much they earn.

Individuals with higher incomes will pay higher proportional taxes in terms of dollars but every individual will pay the same percentage of their income. Some may argue that this is a lose-lose situation because higher taxes aren't collected from the wealthy nor are higher taxes collected from lower-income individuals who might use more public services.

## Does America Have a Regressive Tax System?

Certain aspects of taxes in the United States relate to a regressive tax system. Sales taxes, property taxes, and excise taxes on select goods are often regressive in the United States.

Other forms of taxes are prevalent within America, however.

## What Taxes Are Not Considered Regressive?

Income taxes and estate taxes are among the most common types of progressive or non-regressive taxes. Both have higher rates and higher tax liabilities for those with higher incomes.

Individuals can reduce their tax liability in many ways, however. They may have ways to reduce their liability and pay less in taxes both dollar-wise and percent-wise in a progressive system compared to a lower earner even though they're in a higher tax bracket.

## Is a Flat Tax the Same As a Regressive Tax?

Yes, a flat tax is the same as a regressive tax because the proportion of taxes paid per individual decreases as their income increases.

## Are Regressive Taxes Legal?

Yes, tax structures where higher earners pay less proportional taxes are legal. There's often fierce debate about the responsibility of the wealthy regarding how much tax they should pay but the subject is a matter of opinion because there's no legislation limiting or preventing a regressive tax system for certain types of taxes.

## The Bottom Line

Regressive taxes impose a greater burden on low-income earners, as these individuals spend a larger percentage of their income on taxes that are uniformly applied. Unlike progressive taxes, which increase with income, regressive taxes such as sales tax, excise tax, and user fees apply the same rate across all income levels, disproportionately affecting those with lower earnings. Understanding the implications of different tax structures empowers individuals to better comprehend their financial obligations and advocate for more equitable systems.

> **Article Sources**
>
> 1.  Tax Foundation. "[Regressive Tax](https://taxfoundation.org/taxedu/glossary/regressive-tax/)."
>     
> 2.  Tax Foundation. "[Progressive Tax](https://taxfoundation.org/taxedu/glossary/progressive-tax/)."
>     
> 3.  Tax Foundation. "[Excise Tax](https://taxfoundation.org/taxedu/glossary/excise-tax/)."
>     
> 4.  Tax Foundation. "[Property Tax](https://taxfoundation.org/taxedu/glossary/property-tax/)."
>     
> 5.  Tax Foundation. "[Close to Home: A Short Guide to Property Taxes](https://taxfoundation.org/research/all/state/property-taxes-guide/)."
>     
> 6.  Tax Foundation. "[Flat Tax](https://taxfoundation.org/taxedu/glossary/flat-tax/)."
>     
> 7.  Internal Revenue Service. "[Theme 3: Fairness in Taxes](https://apps.irs.gov/app/understandingTaxes/student/whys_thm03_les04.jsp#:~:text=Although%20individuals%20are%20taxed%20at,from%20those%20with%20lower%20incomes.)."
>     
> 8.  Tax Foundation. "[Payroll Tax](https://taxfoundation.org/taxedu/glossary/payroll-tax/)."
>     
> 9.  Social Security Administration. "[Contribution and Benefit Base](https://www.ssa.gov/OACT/COLA/cbb.html)."
>     
> 10.  Internal Revenue Service. "[Three Taxes That Influence Behavior](https://apps.irs.gov/app/understandingTaxes/whys/thm05/les01/media/is1_thm05_les01.pdf)."
>      
> 11.  Internal Revenue Service. "[Comparing Regressive, Progressive, and Proportional Taxes](https://apps.irs.gov/app/understandingTaxes/whys/thm03/les05/media/ws_ans_thm03_les05.pdf)." Page 1.
>      
> 12.  Tax Foundation. "[Does Your State Have an Estate or Inheritance Tax?](https://taxfoundation.org/data/all/state/state-estate-tax-inheritance-tax-2023/)"