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Difficulty: EasyTypes and Systems of Taxation

Which of the following describes a tax system in which the proportion of income paid in tax decreases as an individual's income increases?

  1. A regressive tax systemAnswer
  2. B
    A progressive tax system
  3. C
    A proportional tax system
  4. D
    A specific tax system

Answer

A regressive tax system
A tax system is classified as regressive when the rate of taxation declines as the tax base or income increases. As a result, low-income earners pay a larger percentage of their total income in tax than high-income earners.

Step-by-Step Solution

1
Analyze how tax rate relates to income level in the question description
The tax rate decreases as income increases.
Tax systems are classified into progressive, regressive, or proportional based on the relationship between tax rate and income.
2
Identify the corresponding tax system definition
A system where the percentage of income paid in tax decreases as income increases is defined as regressive.
Higher-income earners pay a smaller fraction of their income compared to lower-income earners under a regressive structure.

Key Concept

Regressive Tax System
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Topics

Types and Systems of Taxation

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