In the fantasy world known as political discourse, taxes are higher on the wealthy. Single filers making up to $9,275 pay a federal income tax of 10 percent, up to $37,650 pay 15 percent, up to $91,150 pay 25 percent, up to $190,150 pay 28 percent, up to $413,350 pay 33 percent, up to $415,050 pay 35 percent, and beyond pay 39.6 percent. State income taxes broadly track these brackets.
The idea behind these increasing, or progressive, tax rates is that the rich can afford more in absolute dollars than can the poor. For someone making $25,000 per year, $3,750 just as big of a pocketbook hit, if not greater, as $396,000 is for someone making $1 million per year. After all, the million-dollar earner has $604,000 in his pocket after taxes, while the $25,000-earner has merely $21,250 to hopefully make ends meet. (P.S. It's not happening.)
Income tax rates, easy to understand and oft-debated, are but a small part of the tax picture. When you zoom out to see the total burden on poor versus rich, the unavoidable fact is that the poor are taxed at a far higher rate. Call them taxes, call them fees, call them whatever you want. We're soaking the poor.
Of formal taxes, the most regressive, i.e., hardest on the poor relative to the rich, is the sales tax. Relatively speaking, the expenditure level by people from different income strata on food, gas, and other sales tax-affected goods is pretty even. Everybody's got to eat and fill up their tank. But because the poor have less money coming in, sales tax hits them hardest. The poorest Americans spend about 11 percent of their money on sales taxes, while the wealthiest spend about 5.4 percent.That's regressive taxation.
Local public works measures are probably soaking the poor in your hometown right now. Think, for example, of a civic auditorium renovation that is paid for by a restaurant tax. Who goes to a civic auditorium to see the latest off-Broadway touring play? Generally, the wealthy. Who goes to restaurants? Everybody. Effectively, it's a transfer of benefits from the poor to the rich.
The lottery has gained favor in 44 states, generating $17.6 billion as of 2009. It's shamefully regressive. We're all susceptible to foolish bets, but when you have a big bank account, $20 is nothing. When you're poor, $20 is a family dinner that you can't afford to throw out the window. States, rather than protecting their citizens from base impulses or at least remaining neutral, have seized upon their citizens' foibles for revenue. A recent study shows that 60 percent of lottery tickets are purchased by people with very low incomes, and these people disproportionately play for money, not amusement. No matter where the revenues go, when you disproportionately prey upon the poor, you're exacting a regressive tax.
Perhaps the most insidious poor tax of all is the one that is most seldom categorized as a tax. It's not collected by the government, and it's not the product of legislation. Rather, it's the product of capitalism. I'm talking about the higher rate the poor person pays for a loan. The lower rate the poor person gets for investing $1,000 in a bank account versus $1 million. The inferior education his child gets at his bad school because he and his neighbors don't have the income to buy a better one. Her longer commute from the cheaper neighborhood 20 minutes away, which makes her late to renew her tags, which costs her $35 in penalties, with more gas cost to boot. Daily life is more expensive for the poor. Quantify it, and you'll see the most regressive tax of all.
It's possible for a regressive tax to be worth the burden it places on the poor. Taxes on alcohol, tobacco, and fuel, for example, are often defended for their net benefits to society, despite their regressive nature. If you don't want people to drink, smoke, or drive, you may think it's justified to tax those underlying goods to death. Tolls are regressive, but less so than the principal alternative, sales taxes for road improvements.
Perhaps certain regressive taxes are fine. Perhaps all of them are, if we're consciously balancing them against our progressive income tax code. Problem is, we're almost completely oblivious to the regressive aspects of our tax system.
If we're going to have such a broad array of explicit and hidden taxes on the poor, we owe it to ourselves to speak honestly about them. This political season, when you hear about big sales-tax-funded public works, scholarship lotteries, tax reform, or, heaven forbid, the "free-riding poor," don't merely think about federal income tax brackets. Instead, think deeper about the hidden, regressive taxes that make our society less equal, bypass the rich, and soak the poor.