A tax designed to reduce the disparities in wealth between the rich and poor is called a(n):

• A. regressive tax
• B. progressive tax
• C. excise tax
• D. proportional tax

Answer: (B)

Verified step by step guidance

1. Understand the concept of tax types in relation to income levels: a regressive tax takes a larger percentage from low-income earners, a proportional tax takes the same percentage from all income levels, and an excise tax is a fixed tax on specific goods regardless of income.
2. Recognize that a tax designed to reduce wealth disparities aims to take a higher percentage from those with higher incomes, thereby redistributing income more fairly.
3. Recall that a progressive tax system increases the tax rate as the taxpayer's income increases, meaning the rich pay a higher percentage of their income compared to the poor.
4. Match the definition of a tax that reduces wealth disparities with the progressive tax, since it is structured to impose higher rates on higher incomes.
5. Conclude that the correct term for a tax designed to reduce disparities in wealth between the rich and poor is a progressive tax.