What does a regressive tax indicate about taxation for different income levels?

A regressive tax system indicates that individuals with lower incomes pay a higher percentage of their income in taxes compared to those with higher incomes. In a regressive tax structure, the tax burden decreases as income increases, meaning that lower-income earners contribute a larger share of their income. This is often seen in taxes that are flat or those that do not scale with the ability to pay, such as sales taxes or certain excise taxes, where a basic consumption tax takes a bigger proportion out of a lower-income individual's earnings compared to a wealthier individual.

Higher-income earners, conversely, benefit from this structure because a smaller percentage of their total income is taxed compared to their lower-income counterparts. As a result, regressive tax systems can exacerbate inequality and create a heavier tax burden on those least able to afford it. Understanding this concept is essential for discussions around tax policy and equity, as it highlights the differences in how tax systems can affect various income groups.