Question

The sales tax is a regressive tax because:____________ .

1. the percentage of income paid as taxes falls as income rises
2. administrative costs associated with the collection of the tax are relatively high
3. percentage of income paid as taxes is constant as income rises
4. tax tends to reduce the total volume of consumption expenditures.

Answer 1

Answer: 1. the percentage of income paid as taxes falls as income rises

Explanation: A REGRESSIVE TAX is a tax imposed in a way or manner in which the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on expenditure or income, referring to the way the rate progresses from high to low, so in this case the average tax rate exceeds the marginal tax rate.