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Regressive Tax |
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Regressive tax is one among the many types of taxes that are levied on individuals by the government. One example of a regressive tax is the sales tax.
Taxes In General
A tax can be defined as a charge, that is imposed by the government on individuals or the residents of a state. Taxes are the charges that we as citizens pay to the government of a particular country.
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The government imposes different types of taxes and these taxes are used to collect money for the government exchequer. The money that is collected from taxes is used to manage the various resources of the country like the public utility services, the medical services, the public infrastructure like the roads, the railways, and the airports. These taxes are also used to fund various defense projects,the social security system, the medical research for the various hospitals, as well as the educational system. The taxes collected actually help to fill the country's exchequer, and help in the smooth functioning of the government machinery.
Sales Tax
A sales tax can be roughly defined as a tax that any consumer has to play when he or she is buying a commodity or a service. The sales tax is charged as a particular percentage of the market price of a particular service or commodity. A sales tax can be easily realized as consumers have to pay it as soon as they buy a particular service or product. The interesting aspect of sales tax is that it has a kind of a pyramid structure. To explain, very simply imagine you want to buy a chair. The carpenter has to buy the wood. At that point he pays sales tax. When he buys articles like nails, varnish, adhesive even then he is made to pay sales tax for each of these items. When you buy the finished product from the carpenter, you have to pay sales tax. So, imagine the number of times the sales tax is being paid!
Regressive Tax
A regressive tax is where the tax system does not take into consideration the ability of a person's ability to pay the tax. A rich person has to pay the same percentage of tax as a poor person has to pay. For example, if you and Bill Gates go to buy a bar of Mars chocolate, both of you will be made to pay the same percentage of sales tax. Assuming that you are not as rich as Bill Gates, the sales tax will cost you much more than it would cost Bill Gates. This is regressive tax in its simplest form.
The measure of regressivity of a regressive tax is dependent on the percentage amount of the tax payer's income and the percentage of the sales tax in relation to that income. Keeping mind the example of Bill Gates and you going to buy a bar of Mars chocolate, a tax is a regressive tax if a poor person is made to pay more relative to a richer individual. To understand if a tax is a regressive tax, the income elasticity of a good that is being subject to the taxation process, as well as the income substitution factor need to be taken into consideration.
Click on the links of salestaxhub.com to learn more about regressive tax. The site offers useful information on the different types of sales tax.
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