I heard this term used in the newspaper today, what is it exactly?
Regressive taxes are levied more heavily on the poor than on the wealthy. A classic example is a blanket sales tax: because the poor spend a larger percentage of their incomes than the rich, the tax is considered regressive. Most sales taxes do not include food, and this may weaken the case.
Another hypothetical case is a regressive income tax. Imagine charging the highest rate for the lowest income bracket, and lower rates for additional income. This tax would be regressive. The term is opposed to “progressive” taxes, which are levied at a higher rate on those with higher incomes.
It’s a tax that takes a proportionately greater amount from a poor person than from a wealthier person, when considered in terms of their income. Sales taxes and head taxes are typically cited as regressive taxes:
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sales taxes because poorer people tend to spend a greater proportion of their income to make purchases than do wealthier people, so pay a proportionately greater amount in sales taxes;
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head taxes because the amount is a fixed rate and therefore will be a greater proportion of a poor person’s income than a wealthier person. (e.g. - a head tax of $1000 is a much bigger bite out of someone with a total income of $20,000 than it would be for Bill Gates)
A regressive tax is a tax where poorer poorer people pay a higher percentage of their income than rich people do. Sales taxes are regressive, for example. Lets say you and I buy the same product for the same price, and we each have to pay a dollar in sales tax. Now, if I make $10000, and you make $1000, then you’re paying 10 times the percentage of your income on that sales tax than I am.
Taxes are regressive if the proportion of income paid in taxes decreases as your income increases.
The more you earn the less you pay.
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Notice that part of what Nametag (and Ponster) said
isn’t right. Taxes can be really rather regressive, yet have the rich pay more tax.
Also note that whether a tax is regressive or not depends on which proxy for economic position you’re using. A flat rate sales tax is proportional (ie neither regressive nor progressive) with respect to consumption - a reasonable measure of economic position - but regressive with respect to income (since saving increases with income).
Another regressive tax is the Social Security part of FICA. It is 6.2% of the first $87,900 you earn.
For example, if you make $80,000 a year, you pay 6.2% of your income, but if you make $1 million a year, you pay 6.2% of $87,900, which is 0.5% of your income.
Ponster gives a perfect dictionary definition.
There’s an important distinction to be made here, which has been alluded to but not spelled out.
The last true regressive taxes that I’m aware of were in ancien regime France and Czarist Russia, where the nobility were exempted from taxes levied on the peasantry. (And had a lot to do with the respective revolutions in those countries!)
But the sales tax is (a) not a true regressive tax, and (b) has a strongly regressive effect – because it’s levied evenly without reference to income or economic state. Hence it affects the poor more strongly than the rich. It’s for this reason that most states exempt some material from sales tax – in New York, for example, only prepared ready-to-eat food (e.g., in restaurants and take-outs) is taxable; groceries are not. Rents are not taxed. Books are taxed but bona fide periodicals are not. In North Carolina, the tax on foodstuffs is 2% while the tax on other merchandise is 6-7%. The idea is to ameliorate the impact of the sales tax on necessities while imposing it on other merchandise.
The impact of the “flat rate income tax” proposed a few years ago would be very much regressive, as will be obvious when it is thought through.
Notice that none of these taxes is designed as regressive; they merely have regressive effects.
Viewed as tax you can make this argument. But viewed as a contribution to a government-sponsored retirement/disability plan, it’s pretty uniform. There are limits – if Bill Gates were to pay his 12.4% per year, he wouldn’t get millions of dollars in SS benefits every year. He’d reach a peak benefit.
Said another way, I expect to surpass the cap next year, while my office-mate will just reach the cap. We’d both receive the same SS benefit for that work unit.
And what you described was exactly what I meant based on ancien regime France (from Seven Ages of Paris : Alistair Horne).
But I guess that the OP is looking for real world taxes with regressive effects as opposed to a history lesson
I didn’t know about Czarist Russia though so thx !
I think Polycarp referred to a similar thing, but isn’t putting tax on fags and booze considered regressive, as smoking and drinking are more prevalent in the lower socio-economic strata?
Or so I was told…
I think “sin taxes” (taxes on products the govt wants to discourge people from buying) are regressive for the same reason that sales taxes are: if you choose to consume these products, the poorer you are, the more of your income they take.
I can’t prove this, but I do not believe that sin taxes have any effect on consumption. Rich, poor, or in between, I don’t think anyone is influcenced to give up alcohol or tobacco products (or to not start consuming them) by these taxes.
Actually tax increases (or any price increase) has a slightly smaller effect on rates of consumption.
from the ASH site.
Classic example of a regressive tax.
In the UK local services provided by the council(you’d call them City Taxes I guess) are paid for by some kind of levy on residents and upon businesses inthe area concerned, and it also includes real estate owned by those who are not resident.
The local tax, or ‘rates’ as they were known, were based on a notional rentable value of the premises and it had plenty of faults.
The basic idea was supposed to be that the richer you were, the more likely you would have a higher value property, and thus would be able to pay more, and those living in low value multit-occupancy premises would pay less.
Nice idea but shot through full of holes.
The replacement was simply a poll charge (businesess were dealt with seperately) everyone of voting age had to pay exactly the same, which took no account of ability to pay and fell most heavily upon those homes where there were several residents.
Generally speaking, higher incomes tend to go with lower person occupancy of housing, or put another way, the less your income the more you end up living under a shared roof.
For many people, their local tax rose by several hundred percent, whilst those in the higher income levels saw theirs fall by many hundreds of £.
The tax was severely regressive, and led directly to the downfall of one Ms Thatcher from office.
Property taxes can have a regressive effect. Around here, they’re based on the assessed value of your property. This hits poor landowners more heavily than richer ones. This can lead to the phenomena of “gentrification.” If a somewhat seedy area is targeted for revitalization, the property values can climb greatly, as speculators buy up property. This causes property taxes to rise (because comparable properties are now selling for much more than they used to), and many residents of that area suddenly can’t afford to keep their houses any more. These people must move to an ever poorer area, while devolopers buy up the land, build townhouses or luxury apartments, and sell them to yuppie couples. This has happened in some neighborhoods in Detroit recently.