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Finance Glossary

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Regressive Tax


In a progressive tax, the rich pay more taxes. A regressive tax is the opposite—one that affects poor people more. It's not because they are taxed at a higher rate, but because their tax burden is greater.

Sales taxes, for example, are regressive taxes. When you buy detergent, you might have to pay 8.75% in sales tax—and you'll pay that 5% whether you’re rich or not. The extra buck or two might not matter if you're raking in $100G a year, but it can be bruising if that's your budget for lunch. The less you have, the bigger a problem that sales tax is.