Which of the following is an example of a regressive tax?

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

Answer: (B)

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. Analyze each tax option in terms of how the tax burden relates to income levels:
3. Estate tax is typically levied on the value of an estate after death and usually affects only very wealthy individuals, so it is not regressive.
4. Sales tax is applied uniformly on goods and services regardless of income, which means lower-income individuals spend a larger share of their income on these taxes, making it regressive.
5. Personal income tax and corporate income tax are generally progressive or proportional, as tax rates increase with income or profits, so they are not regressive.