Regressive tax

A regressive tax is a tax imposed in such a manner that the average tax rate (tax paid ÷ personal income) decreases as the amount subject to taxation increases.[1][2][3][4][5] "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate.[6][7] 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 burden of the people with a higher ability to pay, as they shift the relative burden increasingly to those with a lower ability to pay.

The regressivity of a particular tax can also factor the propensity of the taxpayers to engage in the taxed activity relative to their resources (the demographics of the tax base). 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, the tax may be considered regressive.[8] To measure the effect, the income elasticity of the good being taxed as well as the income effect on consumption must be considered. The measure can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime.

The opposite of a regressive tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation rises[9][10][11][12] In between is a flat or proportional tax, where the tax rate is fixed as the amount subject to taxation increases.

Examples

  • Poll taxes
  • Lump-sum tax
  • A tax with a cap, above which no taxes are paid.
  • So-called "sin taxes" (pigovian taxes) have also been criticized for being regressive, as they are often consumed more (or at least at a greater proportion) by the lower classes. Such taxes are often imposed at a flat rate so they will make up a greater proportion of the final price of cheaper brands, compared to the higher-quality products generally consumed by the wealthy. For example, "people in the bottom income quintile spend a 78% larger share of their income on alcohol taxes than people in the top quintile."[8] Tobacco in particular is highly regressive, with the bottom quintile of income paying an effective rate 583% higher than that of the top quintile.[8]
  • An allowance reduction[13] in an income tax system allows for an individual's personal allowance to be withdrawn, making a higher marginal tax for a limited band before returning to the underlying rate. In the UK, there is an effective 60% band at £100,000, which returns to 40% at £120,000.[14]
  • Non-uniform excise taxation based on everyday essentials like food (fat tax, salt tax), transport (fuel tax, fare hikes for public transport), energy (carbon tax) and housing (council tax, window tax) is frequently regressive on income. The income elasticity of demand of food, for example, is usually less than 1 (inelastic) (see Engel's law) and therefore as a household's income rises, the tax collected on the food remains almost the same. Therefore, as a proportion of available expenditure, the relative tax burden falls more heavily on households with lower incomes. Some governments offer rebates to households with lower incomes, ostensibly in an effort to mitigate the regressive nature of these taxes.
    • A related concept exists where production and importation of essential goods are strictly controlled, such as milk, eggs, cheese and poultry under Canada's supply management system, the result being that the products will sell for a higher price than they would under a free market system. The difference in price is often criticized for being a "regressive tax" even though such products are generally not taxed directly.
  • Certain payroll taxes, such as Social Security in the United States, are regressive in that there is a cap so that higher income earners pay a lower proportion of their overall income than lower earning people.[15] However, for people with lower than average earnings, the ratio of the lifetime benefits they receive from Social Security to the lifetime payroll taxes they pay for the program is higher than it is for people with higher average earnings. In that sense, Social Security benefits are progressive. For people in the bottom fifth of the earnings distribution, the ratio of benefits to taxes is almost three times as high as it is for those in the top fifth.[16]

See also

Notes

  1. ^ Webster (3): decreasing in rate as the base increases (a regressive tax)
  2. ^ American Heritage Archived 2008-06-03 at the Wayback Machine (3). Decreasing proportionately as the amount taxed increases: a regressive tax.
  3. ^ Dictionary.com (3).(of tax) decreasing proportionately with an increase in the tax base.
  4. ^ Britannica Concise Encyclopedia: Tax levied at a rate that decreases as its base increases.
  5. ^ Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), Concepts of Taxation, Dryden Press: Fort Worth, TX
  6. ^ Hyman, David M. (1990) Public Finance: A Contemporary Application of Theory to Policy, 3rd, Dryden Press: Chicago, IL
  7. ^ James, Simon (1998) A Dictionary of Taxation, Edgar Elgar Publishing Limited: Northampton, MA
  8. ^ a b c Barro, Josh (March 25, 2010). "Alcohol Taxes are Strongly Regressive". National Review Online.
  9. ^ Webster (4b): increasing in rate as the base increases (a progressive tax)
  10. ^ American Heritage Archived 2009-02-09 at the Wayback Machine (6). Increasing in rate as the taxable amount increases.
  11. ^ Britannica Concise Encyclopedia: Tax levied at a rate that increases as the quantity subject to taxation increases.
  12. ^ Princeton University WordNet: (n) progressive tax (any tax with a rate that increases as the amount subject to taxation increases)
  13. ^ "HM Revenue & Customs: Income Tax allowances". Hmrc.gov.uk. Retrieved 2014-01-16.
  14. ^ Tony Wickenden (November 13, 2009). "The 60% tax trap". Money Marketing.
  15. ^ Social Security Snares & Delusions by Irwin Stelzer, The Weekly Standard. Retrieved July 23, 2008
  16. ^ "Is Social Security Progressive?". The US Congressional Budget Office (CBO). 2006-12-15. Retrieved 2014-02-08.
2009 Swiss referendums

Eight referendums were held in Switzerland during 2009. The first was held on 8 February on extending the freedom of movement for workers from Bulgaria and Romania. The next two were held on 17 May 2009 on introducing biometric passports and the "Future with complementary medicine" proposal. A further two were held on 27 September on increasing VAT and the introduction of public initiatives. The final three were held on 29 November on banning the construction of new minarets, exporting weapons and the use of aviation fuel taxation.

2018 Oklahoma teachers' strike

The 2018 Oklahoma teachers' strike began on April 2, 2018, with teachers across the state walking out to protest low pay, overcrowded classrooms, and tax cuts that resulted in lower state-wide education spending. It was the first such action in Oklahoma since 1990. The OEA declared an end to the strike on April 12 after an agreement to increase salaries and state funding for education was reached. The call to end the strike faced some objection from teachers and parents who do not believe that enough concessions were made by lawmakers.Unlike the similar action in West Virginia, the strike was not a "wildcat" strike, as it received endorsement from union leadership, albeit only after pressure from teachers. The protest occurred concurrent with similar protests in Arizona, Kentucky, North Carolina, and Colorado.

End the Fed

End the Fed is a 2009 book by Congressman Ron Paul of Texas. The book debuted at number six on the New York Times Best Seller list and advocates the abolition of the United States Federal Reserve System "because it is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty." The book argues that the booms, bubbles and busts of the business cycle are caused by the Federal Reserve's actions.

Flat tax

A flat tax (short for flat-rate tax) is a tax system with a constant marginal rate, usually applied to individual or corporate income. A true flat tax would be a proportional tax, but implementations are often progressive and sometimes regressive depending on deductions and exemptions in the tax base. There are various tax systems that are labeled "flat tax" even though they are significantly different.

Gambling in the United States

Gambling in the United States is legally restricted. In 2008, gambling activities generated gross revenues (the difference between the total amounts wagered minus the funds or "winnings" returned to the players) of $92.27 billion in the United States.The American Gaming Association, an industry trade group, states that gaming in the U.S. is a $240 billion industry, employing 1.7 million people in 40 states. In 2016, gaming taxes contributed $8.85 billion in state and local tax revenues.Critics of gambling argue it leads to increased political corruption, compulsive gambling and higher crime rates. Others argue that gambling is a type of regressive tax on the individuals in local economies where gambling venues are located.

Ghetto tax

A ghetto tax the phenomenon of people with low incomes, particularly those living in poverty-stricken areas, paying higher prices for goods and services.

Goods and Services Tax (Singapore)

Goods and Services Tax (Abbreviation: GST; Chinese: 消费税) in Singapore is a broad-based value added tax levied on import of goods, as well as nearly all supplies of goods and services. The only exemptions are for the sales and leases of residential properties, importation and local supply of investment precious metals and most financial services. Export of goods and international services are zero-rated.

Lump-sum tax

A lump-sum tax is a special way of taxation, based on a fixed amount, rather than on the real circumstance of the taxed entity.If the lump-sum tax is the same for all taxpayers, it is a poll tax.

Ministers' money

Ministers' money was a tax payable by householders in certain towns in Ireland to fund the local Church of Ireland minister. It was introduced in 1665, modified in 1827, and abolished in 1857. The towns affected were Dublin, Cork, Limerick, Waterford, Drogheda, Kilkenny, Clonmel, and Kinsale. It was levied as a rate of up to one shilling in the pound (i.e. 5%) on the property's rateable value. The valuation, to a maximum of £60, was done by commissioners appointed by the Lord Lieutenant. Churchwardens appointed by the local minister collected ministers' money on the quarter days: Christmas, Lady Day, St John's Day, and Michaelmas. A 1723 act provided that, in Dublin, the same valuation could be used both for ministers' money and for calculating cess, a separate local rate used for public works and poor relief. Thereafter, cess rates were often expressed in terms of pence per shilling of minister's money.

Ministers' money was resented because it was a regressive tax and applied only in towns with a Catholic majority. In rural areas, tithes were a similar grievance, and the 1830s Tithe War ended when the Tithe Commutation Act 1838 replaced tithes with "tithe-rentcharges"; but this did not apply to ministers' money. Another grievance was that the valuations for ministers' money were done infrequently and might not reflect recent improvements or decline in the property or its neighbourhood. An 1838 proposal by Daniel O'Connell to bring ministers' money into the terms of the Irish Poor Law was withdrawn. An 1848 committee of the Commons recommended its abolition, and motions to that effect were proposed by MPs Francis Murphy (1842 and 1844) and William Trant Fagan (six times 1847–54). A petition of Cork residents was laid on the table of the Lords in 1846. In 1854, Sir John Young, the Chief Secretary for Ireland, introduced an Act which reduced the rated charge by one quarter and charged the municipal authority (borough corporation or town commissioners) rather than the minister with collecting it. The Ecclesiastical Commissioners of Ireland forwarded the money from the municipality to the minister, making up the reduction from its own funds. In 1857, Fagan and Francis Beamish introduced a private member's bill, which was successfully enacted, to replace ministers' money with a direct subvention of ministers by the Ecclesiastical Commissioners. Some members of the Church of Ireland objected to the act as confiscation of church property, and saw it as a prelude to disestablishment, which eventually came under the Irish Church Act 1869.

Progressive tax

A progressive tax is a tax in which the average tax rate (taxes paid ÷ personal income) increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, where the average tax rate or burden decreases as an individual's ability to pay increases.The term is frequently applied in reference to personal income taxes, in which people with lower income pay a lower percentage of that income in tax than do those with higher income. It can also apply to adjustments of the tax base by using tax exemptions, tax credits, or selective taxation that creates progressive distribution effects. For example, a wealth or property tax, a sales tax on luxury goods, or the exemption of sales taxes on basic necessities, may be described as having progressive effects as it increases the tax burden of higher income families and reduces it on lower income families.Progressive taxation is often suggested as a way to mitigate the societal ills associated with higher income inequality, as the tax structure reduces inequality, but economists disagree on the tax policy's economic and long-term effects. One study suggests progressive taxation can be positively associated with happiness, the subjective well-being of nations and citizen satisfaction with public goods, such as education and transportation.

Proportional tax

A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation. "Proportional" describes a distribution effect on income or expenditure, referring to the way the rate remains consistent (does not progress from "low to high" or "high to low" as income or consumption changes), where the marginal tax rate is equal to the average tax rate.It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. Proportional taxes maintain equal tax incidence regardless of the ability-to-pay and do not shift the incidence disproportionately to those with a higher or lower economic well-being.

Flat taxes are defined as levying a fixed (“flat”) fraction of taxable income. They usually exempt from taxation household income below a statutorily determined level that is a function of the type and size of the household. As a result, such a flat marginal rate is consistent with a progressive average tax rate. A progressive tax is a tax imposed so that the tax rate increases as the amount subject to taxation increases. The opposite of a progressive tax is a regressive tax, where the tax rate decreases as the amount subject to taxation increases.

The French Declaration of the Rights of Man and of the Citizen of 1789 proclaims: A common contribution is essential for the maintenance of the public forces and for the cost of administration. This should be equitably distributed among all the citizens in proportion to their means.

Sales tax

A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a governing body directly by a consumer, it is usually called a use tax. Often laws provide for the exemption of certain goods or services from sales and use tax.

Sin tax

A sin tax is an excise or sales tax specifically levied on certain goods deemed harmful to society and individuals, for example alcohol and tobacco, candies, drugs, soft drinks, fast foods, coffee, sugar, gambling and pornography. Two claimed purposes are usually used to argue for such taxes. In contrast to Pigovian taxes, which are to pay for the damage to society caused by these goods, sin taxes are used to increase the price in an effort to lower their use, or failing that, to increase and find new sources of revenue. Increasing a sin tax is often more popular than increasing other taxes. However, these taxes have often been criticized for burdening the poor, taxing the physically and mentally dependent, and being part of a nanny state.

Social welfare model

A social welfare model is a system of social welfare provision and its accompanying value system. It usually involves social policies that affect the welfare of a country's citizens within the framework of a market or mixed economy.

Suits index

The Suits index of a public policy is a measure of tax progressiveness, named for economist Daniel B. Suits. Similar to the Gini coefficient, the Suits index is calculated by comparing the area under the Lorenz curve to the area under a proportional line. For a progressive tax (for example, where higher income tax units pay a greater fraction of their income as tax), the Suits index is positive. A proportional tax (for example, where each unit pays an equal fraction of income) has a Suits index of zero, and a regressive tax (for example, where lower income tax units pay a greater fraction of income in tax) has a negative Suits index. A theoretical tax where the richest person pays all the tax has a Suits index of 1, and a tax where the poorest person pays everything has a Suits index of −1. Tax preferences (credits and deductions) also have a Suits index.

Tax bracket

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). Essentially, they are the cutoff values for taxable income—income past a certain point will be taxed at a higher rate.

Taxation in Russia

The Russian Tax Code (Russian: Налоговый кодекс Российской Федерации) is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.

The first part, enacted July 31, 1998, also referred to as the General Part, regulates relationships among taxpayers, tax agents, tax-collecting authorities and legislators, tax audit procedures, resolution of disputes, and enforcement of law.

The second part, enacted on August 5, 2001, defines specific taxes, rates, payment schedules, and detailed procedures for tax calculations. It was significantly amended in 2001–2003 with additions like the new corporate profits tax section and the new simplified tax system for small business. The Code is subject to regular changes which are effected through federal laws.

The Code is designed as a complete national system for federal, regional and local taxes but excludes customs tariffs. Rules and rates of regional and local taxation must conform to the framework established by the Code. Taxes or levies not listed explicitly by the Code or enacted in violation of its specific provisions are deemed illegal and void.The Russian tax system tends to use moderate flat or regressive tax rates. It is highly centralized for a federal state and relies heavily on proceeds from oil and natural gas corporations, who themselves are mostly state owned. In 2006 the tax burden on oil companies exceeded 45 percent of net sales (compared to 12 percent in construction and 16.5 percent in telecommunications). Rates for oil-related taxes and tariffs, unlike regular taxes, are set not by the Tax Code but by government decree. The Russian Ministry of Finance estimated that revenues regulated by the Tax Code accounted for 68 percent of federal revenue in 2008 fiscal year, rising to 73 percent in 2010.

Television licensing in Sweden

Sweden introduced its first television licence fee in 1956 costing 25 SEK annually, the same year television was introduced to Sweden. Until 1988, the licence fee was administered by a division of the Swedish state-owned telecommunications company Televerket, when that function was taken over by Radiotjänst i Kiruna AB which is jointly owned by the three public broadcasters Sveriges Television, Sveriges Radio and Sveriges Utbildningsradio.

The fee pays for five TV channels, 45 radio channels as well as TV and radio on the Internet. In Sweden, the term "television licence" (Swedish: TV-licens) was replaced by the term "television fee" (Swedish: TV-avgift) in 1967, although Swedish people sometimes still refer to it by the former term. Upon the introduction of colour TV in Sweden in April 1970, an extra surcharge of 100 SEK per annum was levied on households with at least one colour TV set. The colour TV surcharge was abolished in 1990 and the annual television fee was therefore increased to compensate for revenue shortfall.

The fee is collected by Radiotjänst from every household containing a TV set, and possession of such a device must be reported to Radiotjänst as required by law. One fee is collected per household regardless of number of TV sets, in the home or in alternate locations owned by the household such as summer houses. Although the fee also pays for radio broadcasting, there is no fee for radios; the radio license fee, originally introduced in 1907, was abolished on April 1, 1978.

Suggestions of replacing the fee with a mandatory tax which is collected together with electricity and water bills occur sometimes in the media. One important argument in favour of replacing the fee with the mandatory tax is that the television fee in its current form is a regressive tax, since lower income households pay a larger share of their income to the fee as compared to wealthier households. An important rebuttal against implementing the mandatory tax however is that all public TV channels in Sweden are neither owned by the state nor are they directly controlled by the government; instead, these channels are owned and operated as part of a quasi-autonomous non-governmental organisation (similar to the BBC in the United Kingdom).Around 90% of households have reported that they have a television set and thereby need to pay the fee. However, the number of households not containing a TV set are considered by Radiotjänst to be a lot fewer than the 10% that don't pay licences. The personnel of Radiotjänst i Kiruna AB have no authority to investigate inside households (for instance flats on higher floor levels), although in the 1980s and 1990s Televerket and subsequently Radiotjänst i Kiruna utilised portable antennas to detect analogue television signals emitting from houses as a means of detecting suspected non-payment of the television fee from households.On November 14, 2018, the Riksdag voted to change the licensing system to a general public service tax on personal income, instead of a tax on people owning television sets, which took effect on January 1, 2019. Under the new tax, the maximum possible fee to be charged by said tax is 1300 SEK per person per year (compared with the annual 2400 SEK fee per household for the whole of 2018), while people who earn less than 13600 SEK per month will pay a reduced fee, subject to means testing. Companies, legal entities, minors under the age of 18 and people without any regular source of income (e.g. students studying in higher education) will not need to pay any fee at all under the new tax system. Radiotjänst i Kiruna has thus refunded all those who have already paid the old television fee for the year 2019.

Value-added tax in the United Kingdom

In the United Kingdom, the value-added tax (or value added tax, VAT) was introduced in 1973 and is the third-largest source of government revenue, after income tax and National Insurance. It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994.

VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the European Union. There are complex regulations for goods and services imported from within the EU. The default VAT rate is the standard rate, 20% since 4 January 2011. Some goods and services are subject to VAT at a reduced rate of 5% (such as domestic fuel) or 0% (such as most food and children's clothing). Others are exempt from VAT or outside the system altogether.

Under EU law, the standard rate of VAT in any EU state cannot be lower than 15%. Each state may have up to two reduced rates of at least 5% for a restricted list of goods and services. The European Council must approve any temporary reduction of VAT in the public interest.VAT is an indirect tax because the tax is paid to the government by the seller (the business) rather than the person who ultimately bears the economic burden of the tax (the consumer). Opponents of VAT claim it is a regressive tax because the poorest people spend a higher proportion of their disposable income on VAT than the richest people. Those in favour of VAT claim it is progressive as consumers who spend more pay more VAT.

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