Which tax structure is considered regressive?

A regressive tax structure is one where the tax rate decreases as the taxable base increases, disproportionately affecting lower-income individuals. Sales tax is a prime example of a regressive tax. When a sales tax is levied, it takes a larger percentage of income from individuals who earn less. For instance, if an individual makes $20,000 a year and pays 10% in sales tax, they end up paying a much larger portion of their total income compared to someone earning $100,000 who pays the same percentage. This means that lower-income individuals spend a larger share of their earnings on sales taxes than wealthier individuals, which is a hallmark of regressive taxation.

In contrast, an income tax that increases with earnings is progressive, as it places a higher tax burden on those who can afford to pay more. A property tax based on property value is generally proportional, as it correlates with the wealth tied up in real estate, and a corporate tax based on profits is also structured progressively based on the entity's financial success. Therefore, the nature of sales tax leading to a larger financial impact on lower-income individuals is what clearly distinguishes it as a regressive tax structure.