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The Progressive Income Tax






















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Why a Sales Tax is Regressive

Assume a 10% tax rate on all sales & that individuals have the following saving habits...

gross

amount

amount

tax

 

avg. tax rate (tax/income)

income

saved

spent

paid

 

 

 

 

$10,000

$0

$10,000

$1,000

 

10.0%

$25,000

$500

$24,500

$2,400

 

9.8%

$40,000

$1,300

$38,700

$3,870

 

9.8%

$60,000

$5,000

$55,000

$5,500

 

9.2%

$100,000

$20,000

$80,000

$8,000

 

8.0%

$500,000

$120,000

$380,000

$38,000

 

7.6%

$2,000,000

$1,000,000

$1,000,000

$100,000

 

5.0%

 

Note that a sales tax would be a proportional tax if everyone spent all of their income, but that is not something that ever happens. As an alternative to either of these approaches to tax policy, consider:

The Progressive Income Tax:  Theoretical foundations