In class, we learned about regressive and progressive taxing. Both are used in different situations, but would it be better to only use regressive or progressive taxing? Is there a way to solve the unfairness of regressive taxing?
As we learned, progressive tax is taxing different brackets of income, so those that earn more money have a greater percentage of their income taxed than people that have a lower income. Regressive taxing is one set percentage for all incomes, takes a greater percentage of lower income home. Regressive taxing is primarily used in grocery or clothing stores. If two people are both buying an item that costs $100 and tax is 10%, the total cost would be $110. This extra $10 is much more significant for someone that may have only $500 to spend rather than some one who has $1,500. Though this taxing is unfair, it is necessary because there is no way to know someone income when they are just buying food or clothes.
Although not realistic, a possible solution could be to cut or limit regressive or sales taxing, and instead take that money through progressive taxing of total spending based on what and how much they buy. Though this solution, or cutting regressive taxing altogether, would be likely, it would help lower income individuals have not as great a percentage of their income taxed when purchasing items.
Something I found interesting was from the Consumer Expenditure Reports which said that in 2015, the lowest earning fifth spent $24,470 in 2015. From that income, 15% was spent on food, 35% on home. and 2% on retirement savings. Conversely, the highest earning fifth spent 110,508, where 11% was spent on food, 33% on home and 14% on retirement savings. Even though both groups were buying the same types of items, the lower income fifth was spending a greater percentage of their income on food and shelter than the upper fifth was.
Are there any ways you think we can fix the issue of regressive taxing?
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I found it very helpful the way you explained how regressive taxing is unfair and put it in the perspective of buying something and explaining that the tax relative to someone's spending allowance makes this kind of taxing unreasonable. I also liked how you proposed a solution to lessen the negative effect regressive taxing can have on lower income households.
ReplyDeleteIn addition to sales taxes, payroll taxes and property taxes are regressive. Payroll taxes include taxes for Social Security and Medicare and apply to only a maximum amount of income. Because the government doesn't collect payroll taxes on nonwage income, payroll taxes become even more regressive. Property taxes are included in the rents that tenants are charged. Therefore, in order to compensate for lower property values, property-tax rates are higher in poorer areas.
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