Question:
A regressive income tax is one where the poor
(1) have a lower percentage of their income taxed than the rich.
(2) pay a larger rupee amount in taxes than the rich.
(3) pay a tax that varies proportionately with their income.
(4) have a higher percentage of their income taxed than the rich.
(5) are able to use tax revenue to purchase essential goods.
Correct Answer:
(4)
Answer Explanation:
A tax is defined as regressive if the average tax rate (the percentage of income paid in tax) decreases as income increases. This means lower-income earners pay a larger fraction of their total income towards the tax compared to wealthy individuals (common with indirect taxes like VAT).
Topic: Taxation Year: 2020
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