this post was submitted on 07 Aug 2023
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Economics
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I always thought that flat taxes are regressive because they hit poorer people harder even before accounting for the various tax avoidance schemes available to the wealthy. For example, 20% means a lot more to someone who only brings in $50 thousand per year than someone who brings in $50 million.
You're right in thinking that in practice, but to my understanding it's usually in context of "equal pain" so a 20% tax burden on income would be equally "painful" to the poor and wealthy (without accounting for avoidance).
When you're talking about a sales tax on necessities like food and shelter then an equal rate is regressive because it represent a larger share of the poor person's available income.
Okay, I understand now. Yes, compared to a flat sales tax, a flat income tax in not regressive.
You're assuming marginal cash has the same value for everyone. It doesn't. Losing 20% at the top bracket might barely be felt. Maybe can't buy quite as many classic cars for the collection, or can only have eight yahts, instead of nine. But at the bottom, that 20% can mean the difference between being able to make rent and ending up homeless, or between being able to pay the power bill or not. It can be the difference between having to get a payday loan or not (and thus cause a loss of considerably more than 20%).
Look up the term "marginal utility" for an academic treatment of the subject.
I'm not assuming that. I'm just explaining the rationale behind tax progressivity. A 20% flat income tax is not regressive by definition. It sucks but its not regressive because that term refers to something specific.
I'm well aware of what marginal utility is and why it's not really equal pain which is why I used the quotes.