What are the Pros and Cons of a Regressive Tax?

Gregory Hanson

Advocates of sales, excise, and property taxes argue that these types of regressive tax are fundamentally more fair than other types of tax and that the use of such taxes may have a positive impact on the behavior of members of society. Opponents of this type of taxation focus on the issue of fairness as well, but define fairness differently, and generally believe that ability to pay should be the main standard used in assigning the burden of taxes, rather than consumption or ownership. Opponents of regressive taxes will also often assert that this type of tax encourages the stratification of society, thereby weakening the middle class.

Opponents say regressive taxes make life easier on the rich and harder on the poor.
Opponents say regressive taxes make life easier on the rich and harder on the poor.

A regressive tax falls most heavily, in percentage terms, on people with the least income. A sales tax is one very common regressive tax. People in higher income brackets tend to spend a smaller percentage of their income on purchases impacted by sales taxes and, therefore, pay a smaller overall percentage of their incomes in sales tax than do people in lower income brackets. Excise taxes, such as the gasoline tax, and property taxes are also regressive. Progressive taxes, on the other hand, fall more heavily on people with larger incomes.

Proponents of a regressive tax argue that taxes fall equally on all people.
Proponents of a regressive tax argue that taxes fall equally on all people.

One common argument used to support these types of taxes is that they are more fair. In this view, who buys what is less important than whether, in the case of sales tax, the tax falls equally on all purchases. Anyone who purchases a particular taxable item pays the same amount.

Another argument, often used to support regressive tax, is that such taxes foster desirable economic behavior. Excise taxes, such as taxes on cigarettes and alcohol, are meant to have an impact on behavior, and these taxes, together with the sales tax, may curb consumption of certain goods and services. In this fashion, they can be used to urge people to avoid dangerous behaviors but encourage savings, which are typically excluded from taxation under this sort of tax plan.

Opponents of regressive tax often share the conviction that fairness in taxation is important but define fairness differently than those who support them. They generally believe that it is more important to avoid imposing tax burdens that impose an undue hardship than to avoid imposing taxes at unequal rates. In this view, progressive taxes, which fall most heavily on people with the greatest ability to pay, are fairer, as they cause less economic hardship.

A further argument against any kind of regressive tax hinges on the importance of maintaining a strong middle class. Supporters of this position typically hold that tax policy should be designed to foster the growth of a middle class by making it relatively easy to rise into that class but relatively difficult to become tremendously wealthy. A regressive policy, they believe, leads to the opposite situation and makes it easier to leave the middle class in either direction.

Property taxes are one form of a regressive tax.
Property taxes are one form of a regressive tax.

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Discussion Comments


@GreenWeaver - I know what you mean but sales tax rates are another form of a regressive tax because although everyone pays the same percentage it does impact the poor more negatively.

There was also talk of having a consumption tax and developing a federal tax rate on goods and services which would also be paid out by tourists. This would be a tax of about 15% on all goods and services. The problem is that businesses would not like this tax because it would make it harder for their customers to buy their goods and services because it is making their goods and services cost more by virtue of this tax.

I know in Europe there is a value added tax but it is in addition to the regular tax system not a supplement. This is really to finance the health care system. But if we implemented that here, I wonder if our tourism would decline?


@Sneakers41 - I agree with most of what you are saying but I think that a progressive tax, like the one we have is here to stay. I think that federal income taxes should be based on a progressive vs. a regressive tax because the ability to pay the tax should be taken into consideration.

A person that earns $40,000 paying 17% of their income in taxes is almost seven thousand dollars while a person earning $200,000 would pay $34,000. While on the face it seems fair, it really is not.

The reason is simple. The person earning the lower salary really needs every penny for necessities. Once a person earns a salary of $200,000 they should have taken care of their necessities and have huge amounts of disposable income.

They would also be left with an income of $166,000 vs. an income of $33,000 for the lower income person. Although the percentage is the same it adversely affects those lower wage earners more and this is why it probably would never be passed in this country.


I remember that there was a movement a little while ago to abolish the Internal Revenue Service and impose a flat tax on everyone earning income. The proponents wanted a flat tax of about 17% of income. This meant that anyone earning above $30,000 a year would be subjected to this tax.

On the plus side, it does remove tax shelters in the tax code and avoids taxing investments a second time. Also, because the taxation method is simplified it would be really hard to avoid paying your taxes.

Some also feel that this type of proportional tax would create a better economy because businesses would hire more employees in order to expand their reach. This reduction on the top income earners that typically own businesses might create a lot of new jobs that would not have been there previously.

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