Sure! Here are simple definitions and examples of regressive tax, progressive tax, and proportional tax:
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Regressive Tax: This type of tax takes a larger percentage of income from low-income earners than from high-income earners. In simple terms, poorer people pay a higher portion of their income in taxes compared to wealthier people.
- Example: Sales tax is often considered regressive because everyone pays the same rate regardless of their income. For instance, if someone earning $20,000 pays $2,000 in sales tax, that’s 10% of their income. But if a person earning $100,000 pays $10,000 in sales tax, that’s only 10% of their income.
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Progressive Tax: This tax system takes a larger percentage of income from higher-income earners than from lower-income earners. In other words, as a person’s income increases, they pay a higher tax rate.
- Example: Income tax in many countries is progressive. For instance, someone earning $30,000 might pay 10%, while someone earning $150,000 might pay 30%.
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Proportional Tax: Also known as a flat tax, this tax takes the same percentage of income from everyone, regardless of how much they earn.
- Example: If everyone pays a flat tax rate of 15%, someone earning $20,000 pays $3,000, and someone earning $100,000 pays $15,000. The rate is the same, but the amount paid varies with income.
In summary:
- Regressive Tax: Poorer people pay a higher percentage (like sales tax).
- Progressive Tax: Richer people pay a higher percentage (like income tax).
- Proportional Tax: Everyone pays the same percentage (like a flat tax).
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