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Progressive, Proportional and Regressive Taxation

Page history last edited by Robert W. Maloy 1 year, 4 months ago

Focus Question: What is progressive, proportional and regressive taxation?

Image from Connie's Econ Blog

Topics on the Page

Internal Revenue Service

Taxpayer Bill of Rights
16th Amendment to the Constitution

Progressive Taxation

Proportional Taxation

Regressive Taxation

Lotteries and Legalized Sports Betting

Proposals for Change

Millionaire Tax and the Fair Share Amendment
Robin Hood Tax

Teens and Taxes

eBook Connection: Tax-Supported Facilities and Services

How to Read a Pay Stub

Presidential Tax Returns includes the tax returns of American presidents from Richard Nixon to Barack Obama as well as those of Franklin Roosevelt and the 2010 presidential and vice-presidential candidates. Presidents began releasing tax returns in the 1970s.

Three Basic Types of Taxes: Sales, Income, Property

Crash Course on Taxes

Three Types of Tax Systems Video: explains each tax system and how it functions in the US

The Internal Revenue Service

History of the IRS

1862 first income tax was established to pay for the Civil War

1913 the 16th Amendment enacted the income tax

16th Amendment to the Constitution established the federal income tax.

1952 Internal Revenue Service name

1988 Taxpayer Bill of Rights

Click here for Taxpayer Bill of Rights

The 1 Percent Problem, Joseph Stiglitz from Vanity Fair Magazine, May 2012 addresses the income inequality in American society.

Payment of the Tithes, Pieter Brueghel the Younger, 1617

Progressive

A taxation structure which progressively increases the percentage of a citizen's income (or wealth) which is paid in tax as income (or wealth) increases.

The consequence should be that the more well off are taxed at a higher rate than are the less well off.

Here is a lesson plan for teaching about Progressive Taxes: Progressive Taxes Lesson Plan

See also History of the U.S. income tax from the Library of Congress.

Throughout the 1860s, 1870s, and 1880s, farmers formed such political organizations as the Grange, the Greenback Party, the National Farmers’ Alliance, and the People’s (Populist) Part who advocated for an income tax.

Supporters of the Occupy movement desire a tax system that is more progressive. Here is a graph showing rising income inequality:

Income Inequality. Posted on Wikimedia Commons by Emmanuel Saez

Supporters of a Progressive tax argue that it would sharply reduce income inequality in the United States by raising the taxes on the wealthy.

Poster Declaring Women Who Pay Taxes Won Votes Too (1913)

Check Your US Tax Rate for 2012--and Every Year Since 1913

Tax Rates of the Mid-20th Century, Teaching History.org

Proportional

A tax system in which the tax collected is in constant proportion to the income being taxed, i.e. as income rises so tax rises proportionately. [2]

A proportional tax is often referred to as a "flat tax" because every person pays the same percent of their income in taxes.

For example, a person earning $10 million a year and a person making $10 thousand a year would each pay the same percent of their income in taxes. The millionaire would pay more, but both would pay at the same tax rate.

graph depicting how proportional tax works at 20% taxation:

Regressive

An 1887 advertising flier for the semi-annual Louisiana State Lottery drawing at New Orleans, 14 June.

Artwork shows a boy and girl with coins and banknotes, presumably to symbolize the schoolchildren the lottery was advertised as benefiting.

external image Louisiana_State_Lottery_Drawing_1887_Children.jpg
A tax structure which requires the more well-off to pay a lower percentage of their income (or wealth) in tax than a less well-off citizen.

Sales tax and the federal goods and services tax (GST) are of this type as these taxes remain constant regardless of one's income.

The consequence is that the more well-off citizen pays a smaller percentage of their income to cover the tax on a new refrigerator than does a less well-off person. [3]

Another example of a regressive tax would be the federal payroll tax which is capped at $97,500. If you earn more than this a year you do not pay a higher rate. A person paying at 90,000 would be paying a higher percentage of their income than a person earning $10 million because the tax is not a percentage, but a gross amount (4).

For an interesting history related to the image to the left, see the Wikipedia entry on the Louisiana State Lottery Company, the only legal lottery in the mid-19th century that was ended in 1907 after corruption charges against it. This was a different organization than the present day Louisiana Lottery Corporation.

For a list of lotteries operated by states, see Lottery Results from USA.gov

Here is a lesson plan for teaching about Regressive Taxes: Regressive Tax Lesson Plan

How Legal Fees Can Serve as a Form of Regressive Taxation

ACLU court case won in San Francisco, California after legal fees were disproportionately impacting Black and Brown communities
Regressive Taxation perpetuate poverty in these communities and are directly related to the racial wealth gap

Lotteries and Legalized Sports Betting

What Are Your Odds of Winning the Lottery?

Odds for correctly choosing 6 numbers drawn are 1 in 13,983,816

4 Reasons Not to Buy a $700 Million Powerball Ticket (That Have Nothing To Do with the Crazy Odds), MarketWatch (August 23, 2017)

Lottery play in the United States is greatest among low-income groups

Men, African Americans, Native Americans, and those living in disadvantaged neighborhoods

What about the casino and Native American relations? (4 min video)

There has been much activity in the past decade regarding sovereign native communities and the federal government's right to regulate
Recent case where the Supreme Court ruled Natives can handle crimes on their lands and the government is hands off
Natives are not taxed
Even though many native communities are poor and disadvantage, much Native Casino revenue is still donated to other communities

Should States Expand Lotteries or Legalize Sports Betting to Raise Money for Communities?

Millionaire Tax Proposal

Everything You Need to Know about the Millionaire Tax Proposal in Massachusetts

Proposed Fair Share Amendment in Massachusetts

Additional tax of four percentage points on the portion of a person’s annual income above $1 million

The new revenue, approximately $2 billion a year, would be spent on quality public education, affordable public colleges and universities, and the repair and maintenance of roads, bridges, and public transportation

A scene from "Bold Robin Hood and His Outlaw Band: Their Famous Exploits in Sherwood Forest", 1912

external image Robin_shoots_with_sir_Guy_by_Louis_Rhead_1912.png

Robin Hood Tax Proposal

Proposal for Robin Hood Tax (also known as FTT or financial transactions tax) that would charge a small fee of less than half of one percent (0.03%) on Wall Street transactions.