Progressive & Regressive taxes describe the tax table, not a political opinion. It's like a mathematical function. Most often these are called progressive or regressive tax tables or taxes.
In a progressive tax, the more you earn, the higher your tax rate.
In a regressive tax, the less you earn, the higher your tax rate.
The classical progressive tax is income tax.
The classical regressive tax is sales tax.
All known functioning systems of taxation have a balance of progressive and regressive taxes. This idea is almost never debated, the debates are over where the balance point should be, how much burden should be on the "rich", and how much burden on the "middle" and "poor"?
In a progressive tax, the more you earn, the higher your tax rate.
In a regressive tax, the less you earn, the higher your tax rate.
Progressive taxes soak the rich, regressive taxes soak the poor.
Poor Boy buys a $20,000 car pays $1000 sales tax or 5.0% of his income.
Rich Boy buys a $60,000 car pays $3000 sales tax or 1.0% of his income.
Poor Boy has 5 times the tax bite, or rate of tax on a car. Rich Boy hardly feels sales taxes.
Then run the numbers on a $30 pair of Levis, and the tax rate discrepancy triples.
Sales tax is NOT a flat tax.
Most per-unit taxes are regressive. For example, in real estate, a $1,000/yr per lot assessment fee is not uncommon in some areas. (for things like fire and sewer, etc) That's a fair chunk for a $200,000 home, hardly nothing for a $2,000,000 home in the same assessment district.
Groceries, drugs and some necessities are rarely taxed for moral reasons because of a compounding problem found with the truly poor that has to do with disposable income. That is, a family that earns less than say, $25,000 has almost none. They may be forced to spend say, 25% of their income on groceries, no choice. A family earning $100K hardly feels the grocery bill in comparison.
This is because even a family that earns say $50,000 has potentially $25,000 disposable if they chose to live as cheaply as the $25k family. This could be funnelled into tax shelters. And Rich Boy often chooses to spend most of his money in ways that avoid sales taxes, such on his gardener, nanny, pool cleaner, chauffeur, accountant, lawyer, and other labor-based services, as well a his European vacation and any investments. Poor Boy has no such choice, his income must go to taxable consumer goods. These complications amplify the "pure" qualities of regressive taxation theory.
Beware of the so-called tax cut.
The tax cut is a funny way of managing a household. It's like deciding that you are spending too much money, so you ask your boss for a wage cut.
Perhaps the best way to stop spending too much money is to stop spending too much money. What an idea! Fix or cut the wasteful programs.
Sometimes a tax cut is not really a tax cut. That's because there is no free lunch. If a needed program is blindly defunded, then the money has to come from somewhere. Often if it's a federal program that is defunded, the slack is taken up by local (largely regressive) taxes. What we have is not a tax cut, but a tax shift, from the Rich Boys debt onto the Poor Boy's shoulders.
In 1996 a federal across-the-board "tax cut" was popular in certain circles. Here is how cutting progressive (income) taxes might have effected you:
If you made 36K, Dole's 15% "cut" takes $320/year less from you. But if local sales taxes edge up 1% to make up, you just lost money. Beware of the free lunch.
While most Rich Boys don't want the Poor Boys to shoulder their debts, keep in mind that for many of the very Rich Boys, that's part of their job. That's just simple economics.
McCain and Obama want to change the bottom-line effects of the tax code. Here's a dollars-and-cents breakdown of what their plans could mean for you.
According to the Tax Policy Center's findings, the common assumptions most people make about the plans of McCain, the presumptive Republican nominee, and Obama, the Democrats' pick, are not wildly off-base.
McCain: The average taxpayer in every income group would see a lower tax bill, but high-income taxpayers would benefit more than everyone else.
Obama: High-income taxpayers would pay more in taxes, while everyone else's tax bill would be reduced. Those who benefit the most - in terms of reducing their taxes as a percentage of after-tax income - are in the lowest income groups.
Under both plans, all American taxpayers could pay a price for their tax cuts: a bigger deficit. The non-partisan research think tank Tax Policy Center estimates that over 10 years, McCain's tax proposals could increase the national debt by as much as $4.5 trillion with interest, while Obama's could add as much as $3.3 trillion.
The reason: neither plan would raise the amount of revenue expected under current tax policy - which assumes all the 2001 and 2003 tax cuts expire by 2011. And neither plan would raise enough to cover expected government costs during those 10 years.
How McCain's Tax Plan Would Affect Taxpayers:
In addition to making the 2001 and 2003 tax cuts permanent, McCain says he would double the exemption for dependents, lower the corporate tax rate, make expensing rules more generous for small businesses and lessen the bite of the estate tax and Alternative Minimum tax.
The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $1,200. That means their after-tax income would rise by 2%.
But those in the lowest income groups would only see their after-tax income rise by less than 1% (or between $19 and $319). By contrast, the highest-income households - those with incomes of at least $603,000 - would see a boost in after-tax income of 3.4%, or more than $40,000.
How Obama's Tax Plan Would Affect Taxpayers:
Obama's plan would keep the 2001 and 2003 tax cuts in place for everyone except those making more than roughly $250,000, and he would increase the capital gains tax.
Obama would also introduce new tax breaks for lower and middle-income groups. Such breaks include expanding the earned income tax credit, giving those making less than $150,000 a $500 tax credit per person on the first $8,100 in income, giving those making under $75,000 a 50% federal match on the first $1,000 of savings, and exempting seniors making less than $50,000 from having to pay income tax.
Like McCain, Obama would lessen the bite of the estate tax and the Alternative Minimum Tax, but to a lesser degree.
The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $160 under Obama's plan. That means their after-tax income would rise by 0.3%.
But those in the lowest-income groups would enjoy the biggest after-tax income rise as a percentage of income - between 2.4% and 5.5% (worth between $567 and $1,042). By contrast, the highest-income households - those with at least $603,000 in income - would see a dramatic decline in their after-tax income - a drop of 8.7%, or $116,000.