Certified Government Financial Manager (CGFM) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

Regressive taxes are characterized by a tax system in which lower-income earners pay a higher proportion of their income compared to higher-income earners. This means that as a person's income decreases, the percentage of their income that they pay in taxes tends to increase.

This system is often criticized because it places a heavier financial burden on those who can least afford it. For example, consider a sales tax: all individuals pay the same rate regardless of their income, which means that lower-income individuals, who spend a larger portion of their income on necessities, end up paying a higher effective tax rate.

The other statements do not accurately describe regressive taxes. Higher income earners paying a higher rate reflects a progressive tax structure. Paying a fixed rate regardless of income does not account for the income disparities that characterize regressive taxation. Finally, while some regressive tax systems might disproportionately benefit wealthier individuals indirectly through government spending patterns, the primary defining feature of regressive taxes pertains to the tax burden on lower-income individuals. Thus, the correct option encapsulates the essence of how regressive taxes function in practice.