A fact based opinion.
Who
benefits and who loses when income taxes are decreased and sales tax
increased?
A
regressive
tax is
a tax
imposed
in such a manner that the tax
rate
decreases
as the amount subject to taxation increases. In
terms of individual income and wealth, a regressive tax imposes a
greater burden (relative to resources) on the poor
than
on the rich — there is an inverse relationship between the tax rate
and the taxpayer's ability to pay as measured by assets, consumption,
or income. These taxes tend to reduce the tax
incidence of
people with higher ability-to-
pay,
as they shift the incidence disproportionately to those with lower
ability-to-pay.
http://en.wikipedia.org/wiki/Regressive_tax
An
example of a regressive tax that applies to all earners:
Social
Security tax is an example. For 2007, you pay 6.2% tax on wages up to
a maximum wage of $97,500. Therefore:
a. A person who makes $30,000 a year pays $1,860 (30,000*.062) in tax or 6.2% of wages. \
b. A person who makes $200,000 a year pays $6,045 (97,500*.062) in tax or 3% of wages.
c. A person who makes $500,000 a year still pays $6,045 in tax (97,500*.062) or 1.2% of wages.
Since the richest people pay the smallest percentage of their income in tax, it is a regressive tax.
a. A person who makes $30,000 a year pays $1,860 (30,000*.062) in tax or 6.2% of wages. \
b. A person who makes $200,000 a year pays $6,045 (97,500*.062) in tax or 3% of wages.
c. A person who makes $500,000 a year still pays $6,045 in tax (97,500*.062) or 1.2% of wages.
Since the richest people pay the smallest percentage of their income in tax, it is a regressive tax.
The
Social Security tax definition is not a pure example due to the
return of the tax to the payer upon retirement
A
better
example of a regressive tax is the sales tax. Money spent to buy
essential and nonessential items that have a sales tax of 7 percent,
for example, hits those with a lower income harder than it hits
higher-income individuals. Fees are another example of a regressive
tax, because lower-income individuals pay a larger percentage of
their income for them. Examples are toll roads, licenses, admission
to museums and parks, and parking. A third example of a regressive
tax is an excise tax, which is a tax on the production or sale of
certain commodities such as alcohol, cigarettes, firearms, gasoline,
air travel and telephone services. Excise taxes are typically hidden
taxes because they are incorporated into the price of the commodity
without consumers' realizing it.
At
some income level, dollars not used for consumption escape the sales
tax.
Paul
Hunter
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