Short Answer 
Sales tax is an indirect tax collected by sellers, increasing living costs, especially for low-income individuals. Its regressive nature means that lower-income earners pay a higher percentage of their income on taxable goods, while wealthier individuals are less affected due to different consumption patterns.
Step 1: Understand the Concept of Sales Tax
Sales tax is considered an indirect tax because it is collected by sellers when consumers purchase goods and services at the retail level. This means that the tax is added to the price of items rather than being paid directly to the government by consumers. It is crucial to recognize that sales tax can increase the overall cost of living for individuals who make frequent purchases.
Step 2: Recognize the Regressive Nature of Sales Tax
The sales tax is deemed regressive because it places a heavier burden on low-income individuals. Unlike wealthier individuals who tend to save or invest a larger portion of their income, lower-income individuals use a significant percentage of their income to buy goods that are subject to sales tax. This leads to lower-income groups effectively paying a higher rate of tax relative to their overall income.
- Low-income individuals spend more on taxable goods.
- Wealthier individuals spend less of their income on these items.
Step 3: Acknowledge the Differential Impact on Income Groups
While sales tax affects all income groups, its impact is much more pronounced for low-income earners. They bear a greater tax burden due to their consumption patterns. Wealthier individuals, in contrast, are less affected since they contribute a smaller proportion of their income towards sales-taxable items. Understanding these implications is vital for discussions about tax equity and measures for alleviating the financial strains on low-income families.
- Sales tax increases overall living costs for low-income individuals.
- Wealthy individuals face a lesser impact from sales tax.