Types of Taxes – Progressive, Regressive and Proportional
A progressive tax is a tax that takes a higher percentage from high-income people and a lower percentage from
low-income people.
For example, let’s say that you have three people:
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Person A makes $10,000/year
Person B makes $50,000/year
Person C makes $100,000/year
Let’s say that person A has to pay $1,000 in taxes; person B has to pay $10,000 in taxes; and person C has to
pay $40,000 in taxes. In that case:
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Person A paid 10% in taxes
Person B paid 20% in taxes
Person C paid 40% in taxes.
Thus, Person C paid a higher portion of his/her income in taxes than Person A did.
A regressive tax is the opposite of a progressive tax. A regressive tax takes a larger percentage of income from
low-income groups than from high-income groups. For example, let’s say that Blair County requires everyone to
pay a $500 property tax for everyone who owns a home. This would be regressive because it would be more
expensive to pay for a low-income person who makes $10,000 a year than for a person who makes $50,000 a
year. To put it another way:
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a $500 tax would be 5% of a person’s income who makes $10,000/year
a $500 tax would be just 1% of a person’s income who makes $50,000/year
Thus, the person who makes $10,000 has to pay a higher percentage of their income than the person who makes
$50,000.
Even though the sales tax is a proportional tax in the sense that everyone in PA pays 6%, the sales tax is more
costly to people with lower incomes than higher incomes. For example, a 6% sales tax on a $1,000 computer
($60) would take a greater portion of a person’s $10,000 income than of a person’s $50,000 income.
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. In other words, the percentage that each group pays is the same. Going back to our
example from progressive taxing, Person A, Person B, and Person C would all pay the same percentage of
taxes.
Using your knowledge of different types of taxes, answer the following questions below:
1.) Chris and Caroline are both doing their own taxes. Chris reports that he earned $35,000 a year and Caroline
reports that she earned $47,000 a year. Chris pays a $2,800 federal income tax (8%) and Caroline pays a $4,000
(8.5%) federal income tax. Is this tax progressive, regressive, or proportional? Then, explain why.
2.) New Mexico decides to change its sales tax law. People who can prove that they make under $15,000 a year
do not have to pay sales tax, while people who make over that amount have to pay a 4.5% sales tax on all
products they buy. Is this sales tax progressive, regressive, or proportional? Then, explain why.
3.) The United States creates a new tax where all businesses have to pay 7.25% of their net profits to the federal
government. Is this an example of a progressive, regressive, or proportional tax?
4.) Complete the table below to show an example of a regressive tax:
George
Earns _$______________/year
Pays ________% in taxes
John
Earns _$______________/year
Pays ________% in taxes
Paul
Earns _$______________/year
Pays ________% in taxes
Ringo
Earns _$______________/year
Pays ________% in taxes
5.) If you were in charge of taxing people, would you levy a progressive tax, regressive tax, or proportional tax?
Explain why you would give this type of tax.