The Difference Between Progressive and Regressive Tax

In simple terms, progressive tax is the opposite of regressive tax. Progress tax is when the more one earns, the higher the tax rate while regressive tax, being the direct opposite, is when one earns more, the lower the tax rate. Looking at the diagram on the left, one can see how as the income moves toward the left (increase) on the progressive curve, the tax paid increases while the opposite goes for the regressive. Because of this, regressive tax tends to help the richer and progressive tax tends to benefit the poorer.

In terms of types of taxes, income taxes, taxes that are directly related to income, are progressive while sales taxes, taxes put on goods and services, are regressive. This is done in order to keep the nation’s gap constant as the richer pay more for income tax while the poorer pay more for sales tax, which would neutralize each other. The wealthy pay less for goods therefore they would pay less sales tax but they would have to fill the gap by paying more income tax.

For example, if the tax rate for a single person A making 800,000 yen (about $8000) a month is 12%, the rate for the same single person B who makes 300,000 yen (or about $3000) would be much lower. Regarding regressive tax in sales taxes, because the same 30,000 yen for groceries would be worth less to person A than to person B in terms of income, person B pays more sales taxes since the tax rate for person A would be smaller than for person B. To keep this neutralizing method, luxury goods are taxed more for the wealthy buy more luxury good than the poorer does.