Progressive Versus Regressive Taxation

Marginal Taxes

Progressive taxation is a tax burden that increases as the taxable amount increases and reflects the taxpayer's ability to pay the tax. Progressive taxation is also referred to as marginal taxation.

For example if there are three tax brackets and a person is wealthy. Example Say:

• first bracket is from 0-15,000$ @ zero tax,
• the second from 15,000$ to 30,000$ @ 5% tax
• the third is from 30,000$ to 100,000$ at 10% tax.

Example

If I make 100,000$, then I pay zero on my first 15,000.00. 5% x 15,000 or 750$ on my next 15,000 and $7000.00 on the third bracket. My total tax burden would be 7750.00$. That is called "marginal taxation".

Shiftability and Incidence

But that is not the only feature of progressivity. My friend Rick explains:

"Whether a tax is “progressive” or “regressive” is" [also] "related to the tax shiftability issue.... Stated differently, a regressive tax is one that can be shifted onto ordinary consumers and the poor, and a progressive tax is one that stays put when levied on a taker of unearned income."

The reformer economist Henry George and his disciples laid out basic principles of fair taxation, starting with the issue of Shiftability. He believed that government should avoid taxes which could be shifted onto consumers and wage earners.

"His main goal with his Single Tax (on unearned income only) was to avoid taxes which could be shifted unto consumers and wage-earners, except that he condoned a tax on consumers of luxury goods and services, because if the tax targeted only luxury items, it would not be shifted onto ordinary consumers."

The most obvious example of this:

"a general sales tax on grocery items would be shifted onto ordinary consumers and the poor, whereas a restaurant or meal-preparation tax would likely not." [Rick DiMare]

Another Example:

For example, a 50-cent per gallon tax on gasoline will not detract from the net profits or dividend pay-outs of oil companies, but WILL be passed on or “shifted to” the consumer. In other words, the incidence of the tax, or who ultimately pays the tax, is the consumer and the poor. The same goes for sales taxes, property taxes, tariffs, imposts, duties, excise taxes, and one of the U.S. income taxes (the Springer income tax which targets wages).

The general principle is that when a tax can be shifted to others, it may be collected by a grocer or landlord, but it is the renter or person buying groceries who is paying it. George died in 1897 and his disciples sometimes argued over details, but all were seeking to implement his principles. His disciple, and tax scholar Edwin Seligman:

"referred to George’s tax shiftability concerns as the “tax incidence,” and if you’re interested in exploring further, he well-explained the concept in “The Shifting and Incidence of Taxation” (1899)."

Note

Because George referred to all of Nature's bounty as "land." I agree that what he meant by the Single Tax is as my colleague Rick DiMare Calls it:

"The most accurate modern meaning of “Single Tax” would refer to a single global uniform tax on unearned income, broadly interpreted to include all forms of income that are unearned, but would not refer to any tax on wages." [...or actual capital]

Sources and Further Readings

https://www.cooperative-individualism.org/george-henry-page.htm

https://en.wikipedia.org/wiki/Pollock_v._Farmers%27_Loan_%26_Trust_Co.

For those with Facebook:

Rick's pages:

https://www.facebook.com/notes/common-wealth-tax/doc-120-the-1890-georgist-constitution/813168725462939/?hc_location=ufi

http://holtesthoughts.blogspot.com/2015/08/the-georgist-constitution.html

https://www.facebook.com/notes/common-wealth-tax/doc-161-poverty-is-caused-by-regressive-taxes-and-prevented-by-progressive-taxes/1498599096919895/

https://www.facebook.com/notes/common-wealth-tax/doc-159-updating-henry-georges-meaning-of-single-tax/1470776836368788/?hc_location=ufi