Worksheet Solutions
Applying Regressive Taxes
Theme 3: Fairness in Taxes
Lesson 2: Regressive Taxes
Key Terms
regressive tax—A tax that takes a larger percentage of income from low-income groups than
from high-income groups.
user fees—An excise tax, often in the form of a license or supplemental charge, levied to fund a
public service.
Summary
A regressive tax is a fixed amount of money paid by each individual or household. In a
regressive tax, the percentage rate decreases as the amount being taxed increases. User fees are
often considered regressive because they take a larger percentage of income from low-income
groups than from high-income groups.
Activity 1
Use the chart below to answer the following questions.
REGRESSIVE TAX
($1,000 per person)
Income
Percent of Income
Paid in Tax
Amount of Tax
$5,000 20% $1,000
$10,000 10% $1,000
$25,000 4% $1,000
$50,000 2% $1,000
$100,000 1% $1,000
a. If this regressive tax were used as an income tax, which group of people would pay the
highest percentage rate of taxes and which would pay the lowest?
Those who made $5,000 would pay the highest percentage (20%) and those
who made $100,000 would pay the lowest percentage rate of taxes.
b. Cory works at a fast-food restaurant. He makes $10,000 a year. How much would he take
home after paying this regressive income tax? How much would his boss, who makes
$25,000, take home?
$9,000; $24,000
c. Marta was making $45,000. She just got a $5,000 raise. Under the regressive tax shown
in the chart, would the share of her income that she pays in taxes increase or decrease?
What percent would she be paying after the raise?
decrease; 2%
Understanding Taxes
1
Understanding Taxes
2
Activity 2
Make a chart similar to the one shown above for the tax amount of $3,000. Then answer the
questions that follow. (To find the percent of income paid in tax, divide the amount of tax by the
income; for example, $3,000 ÷ $50,000 = .06 or 6 percent.)
a. Which income level would suffer most under such a tax? the lowest
b. Which income level would hardly notice the loss of $3,000? the highest
c. Explain why regressive taxes are not used for income tax purposes. They unfairly tax
lower incomes at a higher rate.
Activity 3
Do fixed fees have a place in the larger tax system? For example, states require fees for driver’s
licenses. Is such a fee regressive? Is it fair to all income levels?
On a separate sheet of paper, write a short essay explaining your opinion on this fee placed on
drivers. Or, write an essay suggesting an alternative way of collecting a fee from people who
seek driver’s licenses.
Answers will vary.
