A regressive tax takes a larger percentage of income from people who earn less

A regressive tax is one where the tax rate goes down as your income goes up. This means lower-income households pay a higher percentage of their earnings in tax than higher-income households do. The opposite of a progressive tax (where the rate rises with income), a regressive tax hits hardest on people with the least money to spare.

The most common regressive taxes in the United States are sales taxes and excise taxes. A 7% sales tax takes the same dollar amount from everyone who buys something, but that 7% represents a much larger share of a poor person's paycheck than a rich person's. If you earn $25,000 a year and spend $20,000 on taxable goods, you pay $1,400 in sales tax — that is 5.6% of your income. If you earn $250,000 and spend $20,000 on the same goods, you pay the same $1,400, but it is only 0.56% of your income.

Key Takeaways

  • Regressive taxes take a higher percentage of income from lower earners because the tax rate does not change based on how much you make.
  • Sales taxes, excise taxes on gas and cigarettes, and property taxes are the most common regressive taxes you encounter.
  • A regressive tax can be the same dollar amount for everyone, but it hurts lower-income people more because that dollar amount represents a bigger slice of their total earnings.
  • The federal income tax is progressive (higher earners pay higher rates), but state and local taxes often lean regressive, which can offset some of that progression.

Why sales tax is the clearest example of a regressive tax

Sales tax is regressive because it applies the same percentage to everyone, regardless of income. When you buy groceries or clothes, you pay the same tax rate whether you make $30,000 or $300,000 per year. The tax does not adjust for your ability to pay.

This matters because lower-income households spend most of their money on necessities — food, rent, utilities, transportation. All of those purchases are subject to sales tax (though groceries are exempt in many states). A higher-income household, by contrast, saves a larger portion of their money and does not spend it on taxable goods. The money they save is not subject to sales tax at all. So the tax burden falls disproportionately on the people who have the least flexibility in their budgets.

Other common regressive taxes and how they work

Excise taxes are taxes on specific goods like gasoline, cigarettes, and alcohol. These are regressive for the same reason as sales tax: the rate is flat, but lower-income people spend a higher percentage of their income on these items. A $0.50 per gallon gas tax is the same for everyone, but it takes up a much larger share of a low-wage worker's commute budget than a high-wage worker's.

Property taxes can be regressive in practice, though they are designed to be based on property value. A person who owns a $150,000 home and earns $40,000 per year pays a higher property tax rate relative to their income than someone who owns a $500,000 home and earns $200,000 per year. This is especially true for renters: landlords pass property tax costs to tenants through rent, and renters have no way to deduct those costs from their income taxes the way homeowners can.

Payroll taxes (Social Security and Medicare) are regressive because they only explore to wages up to a certain cap. In 2024, Social Security tax stops explore after you earn $168,600. This means a person earning $50,000 pays the full 6.2% rate on all their income, while someone earning $500,000 pays 6.2% only on the first $168,600 and nothing on the remaining $331,400. The effective rate for the high earner is much lower.

How regressive taxes differ from progressive and flat taxes

The federal income tax is progressive. The tax rate increases as your income increases. In 2024, single filers pay 10% on income up to $11,600, then 12% on income from $11,601 to $47,150, and so on up to 37% on income over $578,100. The more you earn, the higher percentage you pay on your top dollars. This is the opposite of regressive.

A flat tax would charge everyone the same percentage regardless of income — say, 15% for everyone. This sounds neutral, but it functions as regressive because the same percentage takes more from someone with less. A flat 15% tax on $30,000 income is $4,500; a flat 15% on $300,000 is $45,000. The lower earner loses a larger share of their ability to pay for necessities.

Most tax systems in the United States are a mix. The federal income tax is progressive, but state income taxes vary (some are flat, some progressive, some regressive). Local sales and property taxes are regressive. Together, they create a system where the total tax burden can be regressive at the state and local level, even though the federal level is progressive.

Why regressive taxes matter to your tax filing

Understanding regressive taxes helps explain why your total tax burden might feel heavier than the federal income tax rate alone suggests. When you file your federal return, you see the progressive brackets. But you also pay sales tax every time you buy something, property tax if you own a home, and excise taxes on gas and other goods. Those add up.

If you are a lower-income filer, these regressive taxes take a bigger bite. This is one reason tax credits like the Earned Income Tax Credit (EITC) exist — they are designed to offset some of the regressive burden of state and local taxes. When you file your federal return, claiming all the credits you are due can help recover some of what regressive taxes cost you throughout the year.

Frequently Asked Questions

Is sales tax the only regressive tax I pay?

No. You also pay excise taxes on gas, cigarettes, and alcohol; property taxes if you own a home; and payroll taxes on wages. Together, these regressive taxes can add up to a significant share of your total tax burden, especially if your income is lower.

Why do states use sales tax if it is regressive?

Sales tax is straightforward to collect and hard to avoid. States rely on it because it generates revenue without requiring income reporting. Some states exempt groceries or other necessities to reduce the regressive effect, but most do not exempt everything.

Does the federal income tax cancel out regressive state taxes?

Partially. The federal income tax is progressive, so it does offset some regressive burden. But for lower-income filers, state and local regressive taxes often outweigh the benefit of federal progressivity. This is why tax credits matter — they help balance the overall burden.

Can I deduct sales tax on my federal return?

You can deduct either state income tax or state sales tax (not both) as part of your itemized deductions on Schedule A, but only if your total itemized deductions exceed the standard deduction. Most filers use the standard deduction, so this deduction does not help them recover sales tax paid.