Regressive and progressive taxation systems determine tax rates based on income levels, affecting individuals differently. Tax policies like the Earned Income Tax Credit aim to support lower-income individuals through tax refunds and supplements.
Regressive taxation is a form of taxation where lower-income individuals pay a higher percentage of their income in taxes compared to higher-income individuals. For example, sales taxes or state lotteries can be regressive as they disproportionately impact those with lower incomes.
On the other hand, progressive taxation is a system where individuals with higher incomes are taxed at increasing rates. Countries often use progressive tax systems to reduce income inequality by having the wealthy contribute a larger portion of their income in taxes.
Policy changes, such as the Earned Income Tax Credit, aim to support lower-income individuals by providing them with tax refunds or supplements to help alleviate financial burdens.
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