Which of the following taxes uses a regressive tax rate structure?

• A. Progressive income tax
• B. Corporate income tax
• C. Estate tax
• D. Sales tax

Answer: (D)

Verified step by step guidance

1. Understand the definition of a regressive tax: A regressive tax is one where the tax rate decreases as the taxpayer's income increases, meaning lower-income individuals pay a higher proportion of their income compared to higher-income individuals.
2. Review the characteristics of each tax option: Progressive income tax increases tax rates as income rises; corporate income tax is levied on company profits; estate tax is applied to the transfer of wealth after death; sales tax is a fixed percentage on goods and services purchased.
3. Analyze why sales tax is considered regressive: Since sales tax is a flat percentage on purchases, lower-income individuals spend a larger share of their income on taxable goods, effectively paying a higher proportion of their income in tax compared to wealthier individuals.
4. Contrast this with progressive income tax, which imposes higher rates on higher incomes, and estate tax, which targets large transfers of wealth, both of which are not regressive.
5. Conclude that among the options, sales tax fits the definition of a regressive tax rate structure because it places a relatively heavier burden on lower-income earners.