What is an example of a regressive tax?

Sales tax is considered a regressive tax because it takes a larger percentage of income from low-income individuals compared to those with higher incomes. This happens because sales tax is applied uniformly regardless of an individual's earnings; thus, it affects poorer households more significantly as they spend a greater portion of their income on consumable goods subject to this tax.

For instance, a person earning a lower income will spend a higher proportion of their total earnings on basic necessities (like food and clothing) which are usually subject to sales tax, compared to someone with a higher income who might save more of their earnings and spend a smaller percentage on taxable goods. This structure creates a heavier financial burden on lower-income earners, illustrating the regressive nature of sales tax in terms of its impact on income distribution.