Which type of taxation occurs when the proportion of tax decreases as income increases?

Regressive taxation is characterized by a system where the tax rate decreases as the income level increases. This means that lower-income individuals pay a higher percentage of their income in taxes compared to higher-income individuals. For instance, sales taxes or certain excise taxes can be considered regressive because all consumers, regardless of their income, pay the same tax on each purchase. Consequently, those with lower incomes end up spending a larger portion of their income on these taxes compared to wealthier individuals, who have more disposable income. This structure can create greater tax burdens on lower-income earners relative to their earnings.

In contrast, progressive taxation increases the tax rate as income rises, leading to higher-income individuals paying a larger percentage of their income in taxes. Proportional taxation applies the same tax rate across all income levels, meaning everyone pays the same percentage, irrespective of their income. Direct taxation refers to taxes that are directly levied on an individual's income, such as income tax, but does not specify the relationship between tax burden and income level.