Regressive vs. Proportional vs. Progressive Taxes: What's the Difference? (2024)

Regressive vs. Proportional vs. Progressive Taxes: An Overview

Tax systems in the U.S. fall into three main categories: Regressive, proportional, and progressive. Regressive and progressive taxes impact high- and low-income earners differently, whereas proportional taxes do not. Property taxes are an example of a regressive tax; theU.S. federal income tax is a progressive tax example; and occupational taxes are a type of proportional tax.

Regressive taxes have a greater impact on lower-income individuals than on the wealthy. A proportional tax, also called a flat tax, affects low-, middle-, and high-income earners relatively equally. They all pay the same tax rate, regardless of income.

A progressive tax has more of a financial impact on higher-income individuals than on low-income earners, with tax rates and tax liability increasing in line with a taxpayer's income. Investment income and estate taxes are examples of progressive taxes in the U.S.

Key Takeaways

  • A regressive tax system levies the same percentage on products or goods purchased regardless of the buyer's income and is thought to be disproportionately burdensome on low earners.
  • A proportional tax applies the same tax rate to all individuals regardless of income.
  • A progressive tax imposes a greater percentage of taxation on higher income levels, operating on the theory that high-income earners can afford to pay more.

Regressive Taxes

Low-income individuals pay a higher amount of taxes compared to high-income earners under a regressive tax system. That's because the government assesses tax as a percentage of the asset's value that a taxpayer purchases or owns. This type of tax does not correlate with an individual's earnings or income level.

Excise Taxes

Regressive taxes include property taxes, sales taxes on goods, and excise taxes on consumables, such as gasoline or airfare. Excise taxes are fixed and included in the price of the product or service.

Sin taxes, a subset of excise taxes, are imposed on commodities or activities perceived to be unhealthy or negatively affect society, such as cigarettes, gambling, and alcohol. They're levied in an effort to deter individuals from purchasing these products. Sin tax critics argue that these disproportionately affect those who are less well off.

Payroll Taxes

Many also consider Social Security to be a regressive tax. Social Security tax obligations are capped at a certain level of income called a wage base—$160,200 in 2023. An individual's earnings above this base are not subject to the 6.2% Social Security tax.

The annual maximumyou can pay in Social Security tax is capped at $9,932.00 in 2023, whether you earn $160,200 or $1 million. Employers pay an additional 6.2% on behalf of their workers, and self-employed individuals must pay both halves on earnings up to the wage base.

Higher-income employees effectively pay a lower proportion of their overall pay into the Social Security system than lower-income employees. This is because it's a flat rate for everyone, and the cap limits how much income an individual is taxed regardless of income.

Just as Social Security can be considered a regressive tax, it's also a proportional tax because everyone pays the same rate, at least up to the wage base.

Proportional Taxes

A proportional or flat tax system assesses the same tax rate for everyone regardless of income or wealth. This system is meant to create equality between marginal tax rates and average tax rates paid. Eleven states use this income tax system as of 2023: Arizona, Colorado, Idaho, Illinois, Indiana, Kentucky, Michigan, Mississippi, North Carolina, Pennsylvania, and Utah.

Other examples of proportional taxes include per capita taxes, gross receipts taxes, and occupational taxes.

Proponents of proportional taxes believe they stimulate the economy by encouraging people to work more because there is no tax penalty for earning more. They also believe businesses are likely to spend and invest more under a flat tax system, putting more dollars into the economy.

Progressive Taxes

Taxes assessed under a progressive system follow an accelerating schedule, so high-income earners pay more than low-income earners. Tax rates and tax liabilities increase with an individual's wealth. The goal of a progressive tax is to make higher earners pay a larger percentage of taxes than lower-income earners.

Federal Income Tax

The U.S. federal income tax is a progressive tax system. Its schedule of marginal tax rates imposes a higher income tax rate on people with higher incomes and a lower income tax rate on people with lower incomes. The percentage rate increases at intervals as taxable income increases. Each dollar the individual earns places them into a bracket or category, resulting in a higher tax rate once earnings meet a new threshold.

Standard deduction and itemized deductions allow individuals to avoid paying taxes on a portion of the income they earn each year. The amount of the standard deduction changes from year to year to keep pace with inflation.

Progressive Tax Criticisms

Progressive tax rates have critics. Some say progressive taxation is a form of inequality, with higher earners paying more to support lower-income earners. The marginal tax rates for an individual range from 10% to 37% in 2023, with the wealthiest Americans subject to the highest rate. Others argue that the tax code benefits wealthy individuals who can avoid income tax through tax breaks.

In 2022, 40.1% of U.S. citizens did not pay income taxes because they did not earn enough to reach the lowest tax rate, according to the Tax Policy Center. Conversely, a 2021 study by White House economists concluded that the 400 wealthiest U.S. families paid an average income tax rate of less than the lowest tax bracket (8.2%) from 2010 to 2018, despite high marginal tax rates.

Estate taxes are another example of progressive taxes as they mainly affect high-net-worth individuals (HNWIs), and they increase with the size of the estate. Only estates valued at $12.92 million or more are liable for federal estate taxes in 2023.

Examples of Regressive, Proportional, and Progressive Taxes

The following examples of regressive, proportional, and progressive taxes show how they work in practice:

Regressive Tax Example

If shoppers pay a 6% sales tax on their groceries, whether they earn $30,000 or $130,000 annually, those with lesser incomes pay a greater portion of total income than those who earn more. If someone makes $20,000 a year and pays $1,000 in sales taxes on consumer goods, 5% of their annual income goes to sales tax. But if they earn $100,000 a year and pay the same $1,000 in sales taxes, this represents only 1% of their income.

Proportional Tax Example

Under a proportional income-tax system, individual taxpayers pay a set percentage of annual income regardless of how much they earn. The fixed rate doesn't increase or decrease as income rises or falls. Someone who earns $25,000 annually would pay $1,250 at a 5% rate, whereas someone who earns $250,000 each year would pay $12,500 at that same rate.

Progressive Tax Example

In the U.S., income taxes operate under a progressive system. In 2023, federal progressive tax rates range from 10% to 37%. For a single taxpayer, the marginal rate of taxation is:

  • 37% for incomes over $578,125
  • 35% for incomes over $231,250
  • 32% for incomes over $182,100
  • 24% for incomes over $95,375
  • 22% for incomes over $44,725
  • 12% for incomes over $11,000

The tax rates are applied progressively from 10% to 37%. A single taxpayer with a taxable income of $50,000 in 2023 does not pay the full 22% rate for their income. Instead, they pay 10% on the first $11,000 of income, 12% on income from $11,001 to $44,724, and 22% for the amount over $44,725. This earner's effective tax rate is 12%.

Are Income Taxes Progressive Taxes?

Income taxes can be both progressive and proportional. Progressive taxes impose low tax rates on low-income earners and higher rates on those with higher incomes, while individuals are charged the same tax rate regardless of how much income they earn.

Is the Federal Income Tax Proportional?

No, the federal income tax in the United States is progressive.

Are Regressive Taxes Fair?

Regressive taxes may seem fair because they are imposed on everyone regardless of income, but they hurt low-income earners more than others. That's because they spend a larger portion of their income on regressive taxes than people who earn more.

What Taxes Are Considered Regressive?

Regressive taxes are those that are paid regardless of income, such as sales taxes, sin taxes, and property taxes.

How Do You Calculate Progressive Tax?

Progressive tax systems don't charge taxpayers a flat rate. Instead, the percentage you owe increases as your income gets higher. In the U.S., the marginal tax rates are set by the IRS. Here's how you would calculate your income tax burden in 2023: If you are filing as a single taxpayer, you pay 10% on the first $11,000 of income, 12% on any earnings between $11,001 and $44,725, 22% up until $95,375, and so on. The thresholds are different for married couples filing jointly. The highest tax rate of 37% only affects income higher than $578,125 (or $693,750 for married couples filing jointly).

The Bottom Line

Paying taxes is inevitable. But how much of an impact they have depends on the tax system used and how much you make. Regressive taxes—sales taxes, property taxes, and sin taxes—and proportional taxes have a greater impact on low earners because they spend more of their income on taxation than other taxpayers. But progressive taxes—the federal tax system used in the United States—usually impact high-income earners more than anyone else.

Regressive vs. Proportional vs. Progressive Taxes: What's the Difference? (2024)


Regressive vs. Proportional vs. Progressive Taxes: What's the Difference? ›

progressive tax—A tax that takes a larger percentage of income from high-income groups than from low-income groups. proportional tax

proportional tax
A proportional tax, or flat tax, is a tax in which all income levels are taxed at the same rate. Like regressive taxes, proportional taxes may at first glance appear equitable, but they are usually considered unfair because they have a regressive effect on the taxpayer's total income. › app › teacher › whys_thm03_les04
—A tax that takes the same percentage of income from all income groups. regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.

What is the difference between taxes that are regressive and those that are progressive quizlet? ›

A progressive tax when the tax rate increases as the taxable amount increases. A regressive tax takes a big % away from poor people. A flat tax is when everybody pays the same amount of tax.

What's an example of progressive tax? ›

A progressive tax takes a larger percentage of income from high-income groups than from low-income groups and is based on the concept of ability to pay. A progressive tax system might, for example, tax low-income taxpayers at 10 percent, middle-income taxpayers at 15 percent and high-income taxpayers at 30 percent.

What is a regressive tax example? ›

Though true regressive taxes are not used as income taxes, they are used as taxes on tobacco, alcohol, gasoline, jewelry, perfume, and travel. User fees often are considered regressive because they take a larger percentage of income from low-income groups than from high-income groups.

What are the pros and cons of regressive tax system? ›

On the one hand, a regressive tax system can generate revenue and finance public goods and services. On the other hand, a regressive tax system can exacerbate income inequality, reduce economic mobility, and slow economic growth.

What is the difference between a regressive and progressive tax provide an example of each? ›

Progressive taxes are when the tax rate you pay increases as your taxable income rises. The US federal income tax is progressive, with tax brackets ranging from 10% to 37%. Regressive taxes are when the average tax burden decreases as income increases.

What is the difference between the progressive proportional and regressive tax systems the way the tax rate responds to changes in GDP? ›

A progressive tax varies directly with income. A proportional tax stays constant. A regressive tax varies indirectly with income. Tax revenues will rise with GDP under progressive and proportional tax systems and may rise, fall, or stay the same under a regressive tax system.

What is progressive or a proportional tax? ›

progressive tax—A tax that takes a larger percentage of income from high-income groups than from low-income groups. proportional tax—A tax that takes the same percentage of income from all income groups. regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.

What are the main differences between the flat, regressive, and progressive tax plans? ›

Answer: The main differences between a flat, regressive, and progressive tax plans is that the flat tax you pay the same amount even if the price of the good increases (applies for everybody), a regressive tax is the one that decreases if the amount of money you make increases, and the progressive tax is when the tax ...

Which sentence best describes a regressive tax? ›

Answer and Explanation: The correct option is a): Regressive taxes place a higher burden on people who earn less compared to wealthier taxpayers. In regressive taxes, the government collects a higher level of taxes from the low-income earners and a comparatively lower level of taxes from the high-income earners.

What is a proportion tax? ›

With a proportional or flat tax, each individual or household pays a fixed rate. For example, low-income taxpayers would pay 10 percent, middle-income taxpayers would pay 10 percent, and high-income taxpayers would pay 10 percent.

What are 5 examples of regressive tax? ›

  • Poll taxes. Poll taxes is a tax levied on individuals as a condition for voting. ...
  • Lump-sum tax. Lump-sum tax is a fixed tax imposed on individuals or businesses. ...
  • A tax with a cap. ...
  • Sin taxes. ...
  • Excise taxation. ...
  • Payroll taxes. ...
  • Tariffs.

Who pays the most on progressive taxes? ›

With a progressive tax system, those who earn less are taxed less. Those who earn more are taxed more. Since the top earners are taxed more and on larger sums of money, a progressive tax also increases the amount of tax revenue coming in.

What are the benefits of proportional tax? ›

A proportional tax allows people to be taxed at the same percentage of their annual income. Supporters of a proportional tax propose that it gives taxpayers an incentive to earn more because they are not penalized with a higher tax bracket. Flat tax systems make filing easier.

Who do regressive taxes hurt the most? ›

As noted above, regressive taxes affect people with low incomes more severely than those with higher incomes because they are applied uniformly to all situations, regardless of the taxpayer.

Is a regressive tax good or bad? ›

A regressive tax may seem to be an equitable form of taxation because everyone, regardless of income level, pays the same fixed amount. In reality, however, such a tax causes lower-income groups to pay a greater proportion of their income than higher-income groups pay.

What is the difference between a regressive tax and a progressive tax? ›

progressive tax—A tax that takes a larger percentage of income from high-income groups than from low-income groups. proportional tax—A tax that takes the same percentage of income from all income groups. regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.

Which taxes are regressive and progressive? ›

The individual and corporate income taxes and the estate tax are progressive. By contrast, excise taxes are regressive and payroll taxes for Social Security and Medicare are regressive at the top of the income distribution (see figure 2).

What is the difference between progressive and regressive societies? ›

While progressive social movements argue that a new change will make something in society better, regressive social movements are triggered by new changes—and are sometimes a backlash to the results of progressive social movements. Can you think of some contemporary examples of regressive social movements?

What is the difference between a flat tax rate and progressive tax rate in simple terms? ›

Progressive taxes are a system where individuals with higher incomes pay a higher percentage of their income in taxes. Flat taxes entail a uniform tax rate applied to all income levels, with everyone paying the same percentage of their income in taxes.


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