Regressive taxes

[mrgorth]

I mentioned in a debate with a fellow lefty the other day that property and sales taxes are "regressive" as opposed to income tax which is propgressive. He couldn't understand how they are regressive and I don't understand enough to explain. Anyone have a good link to explain how different taxes effects the rich and poor differently? Thanks.

[Sir_Shrek]

1. explained

Regressive: less you earn, the higher you're taxed
Progressive: more you earn, the higher you're taxed.

Simple as that.

On edit: You're looking for more.

The regressiveness of something like a sales tax depends on how you view it. You could note that someone who makes more money is less affected by a sales tax because the sales tax takes less of a chunk of their overall income than it does a poorer person. An extra $5 on a $100 purchase is going to hit a guy who only makes $200 a week a lot harder than the guy who makes $2000 a week.

The only counter I find interesting about sales tax regression is that rich people will spend more money on purchases, therefore pay more tax than a poor person, who won't be able to afford much. In the end, even though the tax is considered regressive, the rich person has still paid more.

[NewJeffCT]

9. Sales tax is regressive

Yes, while the rich person will spend more, he or she does not have to spend more... the rich person could theoretically live on the same amount that the person making 1/10 of his or her salary does.

[Bandit]

2. Sales tax is regressive but not sure about Property Tax

Sales tax effects all at the same rate eg. 5% sales tax hurts some one earning ten thousand dollars a year way more than it does someone earning one hundred thousand dollars. You buy an item for a hundred dollars and five dollars goes to tax. What percent is that five dollars of ten thousand compared to one hundred thousand dollars. Property Tax now that is a different matter. You are taxed a higher tax based on value of property which IMHO is a progressive way to tax people. You own more you pay more same as graduated income tax. You earn more you pay more.

[camero]

3. Property tax is progressive

The higher the value of your home, the more tax you pay. There are also homestead exemptions and my county has a disability exemption.

[vpigrad]

5. Wrong

Property tax is regressive. As a general rule, the more you make, the smaller a percentage of your income that you spend on your home therefore the less you spend on property tax as a percentage of your income. Like around here, a very nice house might be $150k, but one (like mine) that's nice enough to live in (in other words, has heat and no problems serious enough to keep someone from living there) is over $30k. I do taxes for several millionaires that haven't spent anywhere near $200k on their house, but most of the people I do taxes for make less than $20k as a family and have a house that's worth nearly twice the value of their yearly income. The normal people pay a much higher percentage of their income in property taxes.

Also, renters indirectly pay property taxes so they're also hit hard with this regressive tax. I work part-time as a maintenance man for a local apartment complex, and the poor renters there have had their rent double in the past two years because of the increase in natural gas, the regressive sewage tax (went-up by a factor of eight in a year!), and city property taxes (went-up almost 80% in one year to the price of $80k per year for the complex!). I do the owner's taxes and the books for the complex so I know exactly what the costs are. The renters are indirectly paying over $66 per month in property taxes for a small apartment. I know four families in the complex so far that have ended-up homeless due to gas prices and these regressive taxes.

[camero]

8. I stand corrected

I was just looking at property values which is essentially a flat tax not based on income because of the mil rates.

[mrgorth]

4. Here's the main reason I ask

I read this in Molly Ivin's article in The Nation: Is Texas America?

Here in the National Laboratory for Bad Government, we have an antiquated and regressive tax structure--high property, high sales, no income tax. We consistently rank near the bottom by every measure of social service, education and quality of life (leading to one of our state mottoes, "Thank God for Mississippi"). Yet the state is incredibly rich in more than natural resources. The economy is now fully diversified, so plunges in the oil market can no longer throw the state into the bust cycle.

So I was under the impression that property tax was regressive. Thanks for your help.

[beyurslf]

6. The best exampe of a regressive tax is the

payroll tax. Everyone pays the same amount until they make a certain income at which they pay nothing else. There are no other exceptions.

Sales taxes could be said to be regressive but I think that is a little misleading. Everyone pays the same rate for the same things. Yes it is harder for the poor especially if food and clothing is not exempt. But, there are no breaks for anyone. Here, we pay 5.9% for every purchase. I pay it on my food and clothes. I buy jeans for 20 bucks or a 100 bucks I pay the same amount. If I buy a 500 car or a 50,000 car I pay the same rate of sales tax.

Income tax is progressive in theory. With all of the deductions, though, it is possible for someone who makes more to pay less % than someone who makes less.

[JanMichael]

7. The best site, explaination, that I've found is here:

http://www.psnw.com/~bashford/taxation.html

In short:

"In a progressive tax, the more you earn, the higher your tax rate.
In a regressive tax, the less you earn, the higher your tax rate.
Progressive taxes soak the rich, regressive taxes soak the poor."

[Tactical Progressive]

10. Regressive taxation is about discretionary income

Practically, there is no such thing as regressive tax. At a single tax rate, like a sales tax or any 'flat' tax, the more you make or spend, the more tax you pay. It's linear, not progressive or regressive. A progressive tax is one where the more money changes hands, not only is more tax levied on a flat percentage basis, but an *increasing percentage* of money is collected in taxes. That's the definition, and by that definition, there is no such thing as a regressive tax, where the more money is transacted, the less the percentage tax gets taken out. The thing is, such a decreasing tax rate is absurd both politically and practically, rendering the technical definition of regressive taxation useless and therefore meaningless.

Instead, the common representation of tax regregressivity has come to mean, in practical terms, flat taxation, or more broadly, the flatness of a taxation system. That happens to be very meaningful in practical terms because we recognize the reality of discretionary income, or in economic terms marginal utility. Basically if you make $150k and are taxed $50k you are left with $100k. If your lifestyle means you spend $50k annually for your nice home, new car, long vacation, quality furnishings, etc, you still have $50k left in disposable income for savings, investment, splurges, emergencies, ...

If you make $30k and get taxed at the same rate, $10k, you are left with $20k, the same 2/3 as the $100k of the $150k earner. But the problem is that life's essentials don't scale down linearly. The $30k earner doesn't get to 1) pay $10k in taxes 2) spend $10k on his cheap lifestyle and 3) be left with $10k in descretionary income. Life's basics have a relatively inflexible baseline. If you make $1000 a year, that doesn't mean you live on $300. It doesn't work that way. The $30k-earner, even living at a scrimping $18k, roughly 1/3 of the $150k-earner's $50k lifestyle costs, is left with a mere $2k annually in discretionary income. A tiny 1/15 percentage compared to the 1/3 DI that the $150k earner has even with a three-times more expensive base lifestyle.

That is where the concept of regressivity comes into play in analyzing flat taxation mechanisms: it costs more of a percentage of income just to live, the lower on the income curve you go, which squeezes both essentials and discretion much harder on a percentage basis than for higher-income earnings. If all of life's essentials magically became free - food, shelter, clothing, heat, medicine, transportation, communication, ... - then flat taxation, which still wouldn't be a good idea or fair, could at least be considered in practical terms not to be regressive. But they aren't, so it is.