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Regressive Tax at a Glance

Regressive Tax at a Glance

Regressive Tax at a Glance: The Injustice Hidden in Plain Sight

Imagine a world where the rich get richer, and the poor get poorer, and the government actively helps to keep this inequality in place. This may sound like a dystopian nightmare, but it is a reality for many people living in countries with regressive tax systems. In this article, we will take a deep dive into what a regressive tax is, why it is so unjust, and how it perpetuates inequality.

What is a Regressive Tax?

A regressive tax is a tax system in which the tax rate decreases as the taxable amount increases. In simpler terms, as your income goes up, the percentage of your income that you pay in taxes goes down. This is the opposite of a progressive tax system, where the tax rate increases as the taxable amount increases, meaning that the wealthy pay a higher proportion of their income in taxes than the poor.

Types of Regressive Taxes

There are several types of regressive taxes, including sales tax, excise tax, and flat tax.

Sales tax is a type of tax that is charged on goods and services at the point of sale. It is commonly used to generate revenue for state and local governments. Sales tax is regressive because it takes a larger percentage of income from low-income households than from high-income households. For example, if someone spends $100 on goods subject to a 10% sales tax they will pay $10 in tax. If a person’s income is only $500, they are paying 2% of their income in tax. On the other hand, if a person’s income is $5,000, they are paying only 0.2% of their income in tax.

Excise taxes are taxes on specific types of goods or services. These taxes are often applied to products that are considered harmful to individuals or society, such as alcohol, cigarettes, and gasoline. Excise taxes are regressive because they take a larger percentage of income from low-income households than from high-income households. For example, a person with a lower income may spend more money on cigarettes as a percentage of their income than someone with a higher income.

Flat tax is a tax system in which everyone pays the same rate of tax regardless of their income level. This may sound like a fair system, but in reality, it is regressive because it places a greater burden on low-income households. For example, a person earning $20,000 per year and a person earning $200,000 per year both pay 10% in taxes under a flat tax system. However, the person earning less has much less disposable income to begin with, so 10% of their income is a much greater burden than 10% of someone else’s income.

Why is Regressive Taxation Unjust?

Regressive taxation is unjust because it places a greater burden on low-income households than on high-income households. In many cases, this is because low-income households spend a larger proportion of their income on goods subject to regressive taxes.

For example, imagine two families: Family A has an income of $50,000 per year, and Family B has an income of $100,000 per year. Both families have the same basic needs, such as food, housing, and transportation. However, because Family A has less disposable income, they have to spend a larger proportion of their income on these basic needs than Family B. As a result, when Family A buys groceries, they pay a larger percentage of their income in sales tax than Family B. In other words, Family A pays a greater proportion of their income in taxes than Family B, even though they have less money to spare.

This is the fundamental injustice of regressive taxation: the burden of paying for public goods and services falls disproportionately on those who can least afford it. In a just tax system, the burden of paying for public goods and services would be distributed according to ability to pay.

How Does Regressive Taxation Perpetuate Inequality?

Regressive taxation perpetuates inequality by making it harder for low-income households to climb the economic ladder. When people have to spend a large proportion of their income on basic needs and regressive taxes, they have less money to invest in their own education, health care, and financial stability. This makes it harder for them to improve their economic situation and break out of poverty.

At the same time, regressive taxation benefits the wealthy by allowing them to keep more of their income. This gives them more resources to invest in their own education, health care, and financial stability, which enables them to maintain and increase their wealth over time.

The result is a feedback loop: the wealthy get wealthier, while the poor get poorer. This perpetuates economic inequality and reinforces other forms of inequality, such as racial and gender inequality.

What Are Governments Doing About Regressive Taxation?

Many governments are taking steps to address regressive taxation and create a more just tax system. These efforts include:

1. Reducing or eliminating regressive taxes. Some governments are taking steps to reduce or eliminate sales tax on basic needs like food and clothing, which helps to reduce the tax burden on low-income households.

For example, in the United States, some states have exempted certain items from sales tax, such as food and medicine. Similarly, in India, a nationwide Goods and Services Tax (GST) was introduced in 2017 to replace over a dozen federal and state taxes, including a regressive tax on gold.

2. Implementing progressive tax systems. Many governments are also implementing progressive tax systems that require the wealthy to pay a larger proportion of their income in taxes than the poor.

For example, in the United States, the federal income tax is progressive, with higher-income households paying a higher percentage of their income in taxes. Similarly, in France, the income tax system is highly progressive, with the highest tax rate of 45% applying to incomes over €152,260.

3. Investing in public goods and services. Finally, many governments are investing in public goods and services that benefit low-income households, such as education, health care, and affordable housing.

For example, in Finland, the government provides free education to all children and young people, regardless of their socio-economic background. Similarly, in Singapore, the government provides affordable public housing to over 80% of the population.

Conclusion

In conclusion, regressive taxation is a deeply unjust system that perpetuates economic and other forms of inequality. By placing a greater burden on low-income households and allowing the wealthy to keep more of their income, it makes it harder for people to climb the economic ladder and reinforces existing inequalities.

Fortunately, many governments are taking steps to address regressive taxation and create a more just tax system. By reducing or eliminating regressive taxes, implementing progressive tax systems, and investing in public goods and services, they can create a fairer and more equal society for all.


Regressive taxes are those which are applied as a percentage of the price of an item, or as a percentage of income. Progressive taxes are those which are applied fairly to incomes of every amount, so that those that make a higher salary, pay a larger amount in taxes, but as an equal percentage of their salary.

Sales taxes are a regressive tax, as they are applied as a percentage of the cost if an item.The sales tax applies to all individuals equally, regardless of other circumstances, such as the amount of the individuals salary.

Regressive taxes include flat taxes and excise taxes, which are paid on items. For example, the excise tax on gasoline is a regressive tax, as it taxes the amount of gasoline purchase by volume, rather than the salary of the individual buying the item.

The only real progressive tax is generally considered to be income tax, but not in the manner it is currently imposed. There have many that have lobbied for an elimination of the regressive taxes, such as sales taxes, to be replaced with a fair progressive tax to be applied to income.

Replacing regressive taxes with a progressive tax would fairly distribute the tax burden, according to the income of an individual. The wealthy would pay a higher tax on their income, as a percentage, to distribute the tax burden according to wealth.