Economics 101: Explain Regressive Taxes

[Hirka_T_Bawa]

True, but then it also comes down to what you call the middle class. Since the first $20,000 or so of income (numbers comming from out my ass) is tax free, people making $40,000 is still only paying a little in taxes, while someone making $400,000 is paying much more since the $20,000 is only 1/20th of their income while 1/2 of the $40,000 income earner.

[Malodorous]

@Hirka T'Bawa

True, but then it also comes down to what you call the middle class. Since the first $20,000 or so of income (numbers comming from out my ass) is tax free, people making $40,000 is still only paying a little in taxes, while someone making $400,000 is paying much more since the $20,000 is only 1/20th of their income while 1/2 of the $40,000 income earner.

Heh, your post makes sense if I replace the word “income” with “spending” everywhere. As it is, it sounds like your talking about an income tax again, but I think I get what your saying, anyhoo.

Tax policy is a bit contentious for GQ, but I learned a lot about the pros/cons of a national sales tax in this GD thread from a few years back if you’re interested. Lots of good links, and I believe somewhere in there I do a semi-valid back of the envelope calculation of what it would take to make a national sales tax non-regressive (basic conclusion, it would require a big markup of prices to replace current federal revenues from the income tax with a retail sales tax).

[Balthisar]

@Bill Door

You need only look at the social security tax for that. A worker earning $30,000 per year pays 6.2% of their income for social security. A worker earning $200,000 per year pays less than half of that, 2.8%. And a non-worker, with $1,000,000 in unearned income, interest, dividends, rents, capital gains, whatever, pays 0.0%.

Yeah, but your benefits are limited to what you put into it. The cutoff for social security (non-Medicare) is at 94200, and the benefits reflect that. It’s only regressive beyond that point, but if you reflect on what you get back does it still work out as a regressive tax? For example, the non-worker with $1,000,000 will never see benefits. Is it necessary (or not) to consider returns? And the eternal question: is this a tax or a premium?

[Opus1]

@Balthisar

Yeah, but your benefits are limited to what you put into it. The cutoff for social security (non-Medicare) is at 94200, and the benefits reflect that. It’s only regressive beyond that point, but if you reflect on what you get back does it still work out as a regressive tax? For example, the non-worker with $1,000,000 will never see benefits. Is it necessary (or not) to consider returns? And the eternal question: is this a tax or a premium?

The poor tend to live shorter lives, retire later, and start working earlier (due to not going to college), which adds to the regressive nature of SS. I’m unaware of any studies showing the total effect of SS, however. Also, keep in mind that SS tends to pay back rather poorly compared to keeping the money yourself and investing it prudently, which is what the non-worker with 1 mil is presumably doing.

[Bill_Door]

@Balthisar

Yeah, but your benefits are limited to what you put into it. The cutoff for social security (non-Medicare) is at 94200, and the benefits reflect that. It’s only regressive beyond that point, but if you reflect on what you get back does it still work out as a regressive tax? For example, the non-worker with $1,000,000 will never see benefits. Is it necessary (or not) to consider returns? And the eternal question: is this a tax or a premium?

Of course it’s a tax, and it’s always been. Do you consider returns on taxes paid that are used for national defense? How much of our defense budget is used to protect Exxon’s or the Sam Walton heirs’ assets and how much to protect mine?