The Amateur Economist

Generally accepted economic definitions.

Progressive tax rate system:

A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals. The United States income tax is considered progressive: in 2010, individuals who earned up to $8,375 fell into the 10% tax bracket, while individuals earning $373,650 or more fell into the 35% tax bracket. Basically, taxpayers are broken down into categories based on taxable income; the more one earns, the more taxes they will have to pay once they cross the benchmark cut-off points between the different tax bracket levels.

Flat tax rate system:

A system that applies the same tax rate to every taxpayer regardless of income bracket. A flat tax applies the same tax rate to all taxpayers, with no deductions or exemptions allowed.

A regressive tax rate system: Also called a “Fair Tax” by its proponents.

Some examples include gas tax and a sales tax. A simplified example: If a person has $10,000 of income and must pay $1,000 sales tax on an auto purchase, this represents 10% of the person's income. However, if the person has $100,000 of income, this $1,000 tax only represents 1% of that person's income. Regressive means that those least able to pay the tax must pay a higher portion of income than those more able.

Most, if not all developed countries, have some form of progressive tax system. While the system requires periodic revision and simplification it seems to be the best method to prevent wealth accruing to the few and the lowering the standard of living for the many. It helps to grow the job creator* aspect of consumer driven economies.

Flat tax proposals have been offered by some political candidates as an alternative to a progressive system. In order for such a tax to be revenue neutral, (no loss or gain in government revenue), the tax rate selected would have to be increased for the bottom half of earners and decreased for top earners. The job creating consumer would have less purchasing power under this concept.

Efforts to enact a national sales tax, also known as the”Fair Tax” has waned. The tax rates required to match existing revenue would be very damaging for the job creating working class consumer. Most individual states levy a sales tax on many consumer goods and services. At present Ohio has a combination of a progressive income tax and sales tax. The current Ohio governor is tending toward the elimination of the income tax. Ohio has to maintain a balanced state budget where expenditures must match revenue. In this poster's opinion the result of such a shift will require a sales tax rate increase and an expansion of items taxed. The result will be a spiral of higher priced goods and services and a lowered ability to consume those goods and services.

*If the demand for cars and widgets declines will the car manufacturer and widget maker invest in new plant and equipment? Will new jobs be created if consumption declines?

Paul Hunter paulhunter45177@gmail.com