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I never said the rate was proportional to income. I was not talking about incomes. I was taking about the progressiveness of the ratio of the tax burden to the ability to pay it. Which is exactly the goal of a progressive income tax, but calculated in a different way.
Cebuan, the concept of regressive tax all of the rest of us are discussing, is the amount of the tax proportional to income.
We're discussing the flat sales tax in comparison to flat income taxes.
But even if you're judging the character of a tax upon “the ability to pay”, (i.e. upon accumulated wealth rather than current income), the example you provide, a flat tax rate upon the selling prices of cars, is one that is less flat and more regressive. It is certainly not a “progressive” tax.
Excerpted from https://www.investopedia.com/terms/r/regressivetax.asp
“A regressive tax is a tax*applied uniformly, taking*a larger percentage of income from low-income earners than from high-income earners. It is in opposition to a progressive tax, which takes a larger percentage from high-income earners”.
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For example of a sales tax rate of flat 5%:
A family with an income of $35,000/year goes into debt to purchase a $4,000 used car because they need it. They borrowed the money but the dealer received $4,200 almost immediately.
The family's car tax was 200/35,000 = 0.00571% > 0.005
or for their $4,000 car, the tax was greater than a half of a percent of their $35,00 income.
A family with an income of $65,000,000/year purchases a $100,000 car. They wanted a fancy 5th car.
Cash price including tax was $105,000.
The family's car tax was 5,000/65,000,000 = 0.0000769 < 0.0001
or for their $100,000 car, the tax was less than 0.0001 of their $65,000,000 income.
That's why the sales tax is considered as regressive.
Using the disparate impact argument even a progressive tax in the mathematical sense could be considered regressive from a disparate impact POV. E.G. a couple making 50k together and paying a 10% income tax could be more greatly impacted than a couple making 100k and taxed at 12%. Some people will always claim its unfair including, ironically enough, the bottom 20% of the population who enjoy a negative federal tax liability.
I never said the rate was proportional to income. I was not talking about incomes. I was taking about the progressiveness of the ratio of the tax burden to the ability to pay it. Which is exactly the goal of a progressive income tax, but calculated in a different way.
Problem is the "burden to pay it" is also entwined with the good and bad financial decisions individuals do or don't make. I will not tell someone they should stop smoking and drinking to save money, but at the same time will also not necessarily volunteer to take on additional tax burdens so they don't have to. The issue of financial literacy is an important one and I believe that it needs more emphasis, but at the same time individuals have to be held accountable for their decisions.
I also need to point out that businesses that collect sales taxes and governments that collect property taxes have no idea as to either my income or accumulated wealth. Not sure there are privacy laws governing this but I will not voluntarily furnish my income data to city/state government. In Texas we don't have a state income tax so there is absolutely no reason they would need this information.
Last edited by verybadgnome; 01-12-2019 at 11:05 PM..
In addition to old threads being closed after X amount of inactivity...
I'm beginning to think that ALL threads should be closed after some number of pages.
{shrug} Virtually all economists think a sales tax is regressive. If you wish to change the definition to suit your argument, take it up with the economic academic community. Until then, you are simply wrong.
A sales tax is a flat tax vis-a-vis consumption; the problem, or confusion arises when one describes it vis-a-vis income.
In fact, a flat-tax on INCOME, which by definition is FLAT, i.e. neither regressive nor progressive, becomes progressive if any part of income is excluded. E.G. If there is an exemption on the the first $20k of income someone making $30k will pay a disproportionately lower income tax rate than someone making $100k!
Until the rules of math change you are simply wrong.
Last edited by PamelaIamela; 01-13-2019 at 09:09 AM..
P.S. Ability to pay is a separate and highly subjective issue which is not part of the regressivity-progresivity of a tax, tho for political purposes it is quite possibly the major and most hotly debated one.
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