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A regressive tax is a tax imposed so that the tax rate decreases as the amount to which the rate is applied increases. The term "regressive tax" can be applied to any type of tax. It is frequently applied in reference to fixed taxes, where every person has to pay the same amount of money, such as a poll tax. The term regressive refers to the way the rate progresses from high to low. The opposite of a regressive tax is a progressive tax, where the tax rate increases as the amount to which the rate is applied increases. In between is a proportional tax, where the tax rate is fixed as the amount to which the rate is applied increases. Regressive taxes reduce the tax incidence of people with higher incomes, as they shift the incidence disproportionately to those with smaller incomes. Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ...
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Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ...
Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank Money supply Fiscal policy Spending Deficit Debt Trade policy Tariff Trade agreement Finance Financial market Financial market participants Corporate Personal Public Banking Regulation The term direct tax has more than one meaning: a colloquial...
The term indirect tax has more than one meaning. ...
Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank Money supply Fiscal policy Spending Deficit Debt Trade policy Tariff Trade agreement Finance Financial market Financial market participants Corporate Personal Public Banking Regulation An income tax is a tax levied on the financial income...
This article is the current Taxation Collaboration of the Month. ...
A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ...
Stamp duty is a form of tax that is levied on documents. ...
A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ...
Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank Money supply Fiscal policy Spending Deficit Debt Trade policy Tariff Trade agreement Finance Financial market Financial market participants Corporate Personal Public Banking Regulation Value added tax (VAT), or goods and services tax (GST), is...
A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ...
The tax, tariff and trade laws of a political region, state or trade bloc determine which forms of consumption and production tend to be encouraged or discouraged. ...
First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ...
A tax (also known as a dutyor Zakat in islamic economics) is a charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e. ...
A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. ...
A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. ...
Tax advantage refers to the economic bonus which applies to certain accounts or investments that are, by statute, tax-reduced, tax-deferred, or tax-free. ...
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Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. ...
This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ...
Economic policy refers to the actions that governments take in the economic field. ...
Monetary policy is the process by which the government, central bank, or monetary authority manages the money supply to achieve specific goals—such as constraining inflation or deflation, maintaining an exchange rate, achieving full employment or economic growth. ...
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Fiscal policy is the economic term that defines the set of principles and decisions of a government in setting the level of public expenditure and how that expenditure is funded. ...
Government spending or government expenditure consists of government purchases, which can be financed by seigniorage (the creation of money for government funding, at a heavy price of high inflation and other possibly devastating consequences), taxes, or government borrowing. ...
A budget deficit occurs when an entity (often a government) spends more money than it takes in. ...
Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank Money supply Fiscal policy Spending Deficit Debt Trade policy Tariff Trade agreement Finance Financial market Financial market participants Corporate Personal Public Banking Regulation Government debt (also known as public debt or national debt) is...
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A tariff is a tax on foreign goods. ...
A trade pact is a wide ranging tax, tariff and trade pact that usually also includes investment guarantees. ...
Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ...
In economics a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect efficient markets. ...
There are two basic financial market participant catagories, Investor vs. ...
Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ...
United States Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ...
Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ...
“Banker†redirects here. ...
Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank Money supply Fiscal policy Spending Deficit Debt Trade policy Tariff Trade agreement Finance Financial market Financial market participants Corporate Personal Public Banking Regulation A tax is a financial charge or other levy imposed on...
A poll tax, head tax, or capitation is a tax of a uniform, fixed amount per individual (as opposed to a percentage of income). ...
A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. ...
A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. ...
First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ...
The regressivity of a particular tax often depends on the propensity of the tax payers to engage in the taxed activity relative to their income. In other words, if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, then the tax is regressive. To determine whether a tax is regressive, the income-elasticity of the good being taxed as well as the income-substitution effect must be considered. A simplified illustration of a regressive tax on income (proportional on consumption) is as follows: If Jane has $10 and John has $5, a tax of $1 on a purchase would result in an effective tax rate on the total of 20% for John and 10% for Jane. Thus, a tax that is fixed to the value of the good/service (without exemptions or rebates) would likely, in effect, result in a higher rate of taxation to people with less money (depending on consumption level and timeline examined - year or lifetime). A regressive tax system does not mean and likely would not result in low income earners paying more taxes than the wealthy, only that the effective tax rate relative to income or consumption would be a larger tax burden to low income earners. In economics, the income elasticity of demand measures the responsiveness of the quantity demanded of a good to the income of the people demanding the good. ...
Advocacy and criticism Supply-side economics advocated regressive taxes as a means to solve the problem of stagflation.[citation needed] There is considerable debate as to whether regressive taxes are such a solution, in practice and in theory. The highest tax bracket in the United States before President Ronald Reagan was 70%, a percentage viewed by some as being too high, and thus straining the main arguments for progressive taxes. Opponents of high tax rates for the rich argue that it lowers the incentive to work and innovate, while proponents argue that since the rich are still indeed rich, their incentive is left intact (or, alternatively, they may argue that most of the rich no longer work and innovate once they reach a certain level of wealth, or at least have no particular need to do so in order to maintain their lifestyle). Counter arguments include the view that high taxes on the rich could reduce their ability to expand their businesses and thus fewer jobs in the market, assuming no differentiation between corporate income and personal income. This article uses excessive clichés and jargon. ...
Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, although this is much rarer). ...
Ronald Wilson Reagan (February 6, 1911 – June 5, 2004) was the 40th President of the United States (1981 – 1989) and the 33rd Governor of California (1967 – 1975). ...
A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. ...
As of 2004, the highest tax bracket in the United States is 35%, one of the lowest in the world; however, many American states levy their own income tax in addition to the federal rate and added with FICA taxes, which are also based on income, up to a certain threshold level. The combined tax burden can amount to half or near half of an individual's income. Opponents of regressive taxation state that a regressive tax effectively punishes the poor for being poor, placing a higher burden on those least able to bear that burden. Advocates would state that every person should be treated equally under tax law regardless of income and that progressive taxation amounts to class warfare, wealth envy, and Karl Marx communism with "From each according to his ability, to each according to his needs." Tax brackets are the divisions at which tax rates change in a progressive tax system (or an explicitly regressive tax system, although this is much rarer). ...
Federal Insurance Contributions Act (FICA) tax is a United States tax levied in an equal amount on employees and employers to fund federal programs for retirees, disabled, and children of deceased workers. ...
Class conflict is both the friction that accompanies social relationships between members or groups of different social classes and the underlying tensions or antagonisms which exist in society. ...
Class envy is a pejorative term sometimes used to describe criticisms of the rich and powerful by the poor and less powerful. ...
Karl Heinrich Marx (May 5, 1818, Trier, Germany – March 14, 1883, London) was a German philosopher, political economist, and revolutionary. ...
Communism is an ideology that seeks to establish a classless, stateless social organization based on common ownership of the means of production. ...
From each according to his ability, to each according to his need (or needs) is a slogan popularized by Karl Marx in his 1875 Critique of the Gotha Program. ...
At least one critic in the United States has argued that progressive taxation is not what that nation’s founders intended. Dr. Burton W. Folsom at the Mackinac Center for Public Policy has written:
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- The principle behind the progressive income tax—which asserts that the more you earn, the larger the percentage of tax you must pay—is not what the nation’s Founders wanted. An attempt by Congress to impose one late in the nineteenth century was declared unconstitutional by the Supreme Court. It took a constitutional amendment, ratified in 1913, for such a tax to be legal.[1]
In the actual text of the two decisions in the Supreme Court case, Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, aff'd on reh'g, 158 U.S. 601 (1895), the Court did not mention the terms "regressive tax" or "progressive tax" and, whether the tax was progressive or not, there is no mention in the texts that the parties even raised the issue of the constitutionality of the 1894 income tax statute based on any theory about the tax being either progressive or regressive. The Court in Pollock ruled that the 1894 tax on income from property (e.g., rental income) should be treated as a direct tax (i.e., should be treated in the same way that a tax on the property by reason of ownership would be treated) and that, since the 1894 income tax was not apportioned among the states according to population, the tax was unconstitutional. The effect of that rule was indeed overturned by the Sixteenth Amendment in 1913. Amendment XVI in the National Archives Amendment XVI (the Sixteenth Amendment) of the United States Constitution, authorizing income taxes in their present form, was ratified on February 3, 1913. ...
Holding --- Court membership Case opinions Laws applied --- Pollock v. ...
The Revenue Act or Wilson-Gorman tariff of 1894 slightly reduced the U.S. tariff rates from the numbers set in the 1890 McKinley tariff. ...
Examples Some payroll taxes, such as Social Security taxes in the United States are regressive. The rate is 12.4% on an amount of income adjusted annually for inflation called the wage base (e.g., $94,200 for the year 2006, and $97,500 for 2007[2]). Half of the tax is withheld from the employee's pay with the other half being paid by the employer. Self-employed individuals pay the entire amount of applicable tax. However, whether this tax should properly be called regressive is disputed because under the benefit formula for computing retirement benefits, the benefit of those with higher lifetime earnings is proportionally lower compared to those with lower lifetime earnings. A recipient's lifetime earnings on which Social Security tax is withheld is indexed and averaged over the highest 35 years of earnings to obtain an Average Monthly Indexed Earnings amount (AIME). If Social Security benefits begin at a person's Normal Retirement Age (65 to 67, depending on year of birth), the monthly benefit in 2007 is 90% of the first $680 of AIME, 32% of AIME above $680 and less than $4100, and only 15% of AIME in excess of $4100. For example, an individual whose indexed earnings were at the poverty level of $10,200/year would receive 78.4% of that in benefits, while an average earner of $37,000/year would receive only 44.8% of that in benefits, and individual's with above average earnings receive an even lower proportion in benefits. Wages on which Social Security tax is not withheld, for example that amount earned in excess of the wage base or that of certain public employees, is not included when the AIME is computed and therefore does not increase a person's benefits. This article is the current Taxation Collaboration of the Month. ...
Federal Insurance Contributions Act (FICA) tax, a kind of payroll tax, is a United States employment tax imposed in an equal amount on employees and employers to fund federal programs for retirees, the disabled, and children of deceased workers. ...
A value-added tax or other sales tax on food and other essentials such as clothing, transport, and residential rents can be regressive. Since the income elasticity of demand of food is usually less than 1 (see Engel's law), it tends to take up a higher percentage of the budget of a person or family with a lower income. A poll tax is a fixed tax for each person: since each person pays the same amount of money, it is a lower proportion for people with higher incomes. Television licences that are implemented in many countries, especially in Europe, are considered regressive taxes and in most cases consist of a flat annual payment for the use of a television. Value added tax (VAT) is a sales tax levied on the sale of goods and services. ...
A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ...
In economics, the income elasticity of demand measures the responsiveness of the quantity demanded of a good to the income of the people demanding the good. ...
Engels law is an observation in economics stating that, with a given set of tastes and preferences, as income rises, the proportion of income spent on food falls, even if actual expenditure on food rises. ...
A poll tax, head tax, or capitation is a tax of a uniform, fixed amount per individual (as opposed to a percentage of income). ...
A television licence (or more correctly broadcast receiver licence, as it usually also pays for public radio) is an official licence required in many countries for all owners of television (and sometimes also radio) receivers. ...
Property taxes are often called regressive.[citation needed] Because the income elasticity of demand of housing is usually less than 1 and property taxes contribute to the cost of owning or renting housing, property taxes often consume a higher percentage of a lower income budget than they do for a higher income budget. Property tax is an ad valorem tax that an owner of real estate or other property pays on the value of the target of the tax. ...
The regressive aspects of property taxes are, however, disputed.[citation needed] Only a fraction of property is used for housing, with most of the value held in property being tied to agricultural, manufacturing, and office facilities. This is both due to the greater area used for non-residential purposes and the much greater value of the improvements often associated with the same.
High-income owners may also tend to own substantially (and disproportionately) more property, either directly or through companies in which they hold stock. High income owners also tend to own more industrial, retail, and office property than low-income earners, with this effect seen strongly in the finances of municipalities. Towns and cities with a large number of "ratables" (commercial property excluding rental housing) raise substantially more revenue than towns of equal wealth and size but fewer ratables.[citation needed] Thus, property taxation is arguably more often progressive in practice. A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. ...
William H. Gates, Sr., the father of Microsoft co-founder Bill Gates, came to a different conclusion in a 2003 study of tax schemes California, Idaho, Oregon, and Washington, arguing that property taxes were regressive by one to three percent (depending on the state), between the lowest and highest income brackets. William Henry Gates, Sr. ...
William Henry Gates III (born October 28, 1955) is an American entrepreneur and the co-founder, chairman, former chief software architect, and former CEO of Microsoft, the worlds largest software company. ...
Official language(s) English Capital Sacramento Largest city Los Angeles Area Ranked 3rd - Total 158,302 sq mi (410,000 km²) - Width 250 miles (400 km) - Length 770 miles (1,240 km) - % water 4. ...
This article or section does not cite its references or sources. ...
Official language(s) (none)[1] Capital Salem Largest city Portland Area Ranked 9th - Total 98,466 sq mi (255,026 km²) - Width 260 miles (420 km) - Length 360 miles (580 km) - % water 2. ...
Official language(s) English Capital Olympia Largest city Seattle Area Ranked 18th - Total 71,342 sq mi (184,827 km²) - Width 240 miles (385 km) - Length 360 miles (580 km) - % water 6. ...
See also A progressive tax is a tax imposed so that the tax rate increases as the amount to which the rate is applied increases. ...
A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. ...
First discussed by the Physiocrats in France, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. ...
This article or section does not cite any references or sources. ...
The Suits index of a public policy is a measure of collective progressivity. ...
Notes - ^ What's Wrong with the Progressive Income Tax?, Mackinac Center for Public Policy, May 3, 1999
- ^ Publication 15, Employer's Tax Guide (Circular E) (Jan. 2007), p. 16, Internal Revenue Service, U.S. Dep't of the Treasury.
External links Wikiquote has a collection of quotations related to: - Historic Struggles - A chapter from the 2004 book, Greed and Good, that traces the history of efforts to create and maintain a progressive tax structure in the United States.
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