Home > Musings, Politics, Uncategorized > Is the Fair Tax an un-Biblical Regressive tax on the Poor? Part 1 of 2

Is the Fair Tax an un-Biblical Regressive tax on the Poor? Part 1 of 2

On my Maximum Tax Rate post someone with the handle of CheesyPig posted the following comment:

Isn’t FairTax actually quite seriously regressive, i.e. the poor end up paying a much larger proportion of their wages than the rich in tax? That doesn’t seem to tie up very well with our Biblical responsibilities towards the poor…

It was interesting to think about and contained something that I’ve been mulling over for a while, so I thought I’d address it specifically.  There are several assumptions here and I will address each.

  1. A regressive tax is  bad.
  2. The FairTax is regressive.
  3. Our Biblical responsibility toward the poor includes providing them with lower tax rates.

Let me preface this by saying that I haven’t yet read much Fair Tax literature, so please don’t take anything I say as accurately reflecting it.  These are merely thoughts relating to my current understanding of it.

A regressive tax has a decreasing rate as the amount of money being taxed increases.  It is the opposite of a progressive tax which increases the tax rate as the amount of money being taxed increases.  Unfortunately this typical wording sidetracks the focus from the actual amount of tax being paid.  Let’s look at an example.

Tax Rates

Tax Rates

In the first chart looking at the progressive and regressive rates we have regressive tax rates that descend as income rises and progressive rates that ascend identically as income rises.  Looking at chart two we see that a regressive tax keeps the amount of tax paid about equal for all income levels with a moderate plateau at the midway point.  The progressive tax on the other had provides a steady increase in the tax amount paid as income rises.

My first thought when considering the pros and cons of these tax structures is that each individuals worth is the same, so their tax liability should be the same regardless of income.  This would dictate a regressive tax rate geared so that each individual pays the same amount of tax.  I quickly realized that just because an individual has the same worth doesn’t mean they are in need of the same amount of government.  As financial means increase so also does the amount of military protection needed, the use of public infrastructure such as roads increases, and the costs related to patent and trademark protection increase.  So it makes sense the the amount of tax should increase, but does the system need to be progressive in order to produce these results?  Not at all, as you can see in the Fair Tax columns of charts 1 and 2, a rate that is the same for all income levels produces small tax amounts for lower income levels and higher amounts for larger income levels a seemingly equitable arrangement.

Of course this isn’t an apples to apples comparison.  For one thing I have income listed here, which under the Fair Tax only consumption is taxed not income, but let’s leave that alone for now and assume everyone is spending almost all their income.  Although poor people in the United States would be considered rich in most countries and most time periods there are certain expenses that while not technically needs are broadly accepted as necessary.  Since our poorest person on this chart is the $10 income level we could assume that almost all of their expenses go to what the other income brackets would consider necessities.  Referring back to each person being of equal worth it seems reasonable that a portion of basic needs would get a tax break.  In the third section of the chart this is calculated as the amount per income bracket the tax needs to be lowered in order for the total tax to be revenue neutral.  In the actual Fair Tax this is calculated as the poverty level.  When we plug this discount in in section 4 and calculate the real Fair Tax rates back in section 5 we see that the rate is progressive, but only slightly.

Something else that makes this not an apples to apples comparison is that the ratio of existing wealth to new income is not shown.  Those with higher incomes are more likely to be spending existing wealth rather than new income.  An income tax will effect those with existing wealth less than those spending mostly from their income, but the Fair Tax because it regards spending not income will tax each of these equally.

For the first assumption, I agree that a regressive tax is bad, but I also see anything more than a mildly progressive tax as not equitable.  Addressing the assumption that the Fair Tax is regressive, it seems it clearly is not.

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