Which type of tax hurts low-income earners?
Regressive taxes take a larger percentage of income from low-income earners than from middle- and high-income earners. As such, the tax burden decreases with regressive taxes as income rises. It is contrasted with a progressive tax, which takes a larger percentage from high-income earners.
Regressive taxes have a greater impact on lower-income individuals than on the wealthy. A proportional tax, also called a flat tax, affects low-, middle-, and high-income earners relatively equally. They all pay the same tax rate, regardless of income.
regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.
Indirect tax is regressive. This means the tax is applied uniformly irrespective of the income level of individuals. As a result, consumers with higher incomes will be paying a relatively small share of the tax, while low-income consumers will shoulder a disproportionate share.
- Delaware: 0%
- Montana: 0%
- New Hampshire: 0%
- Oregon: 0%
- Alaska: While there's technically no state-level sales tax, some localities may impose their own taxes, averaging a low combined rate of 1.76%.
- Hawaii: 4.44%
- Wyoming: 5.34%
- Wisconsin: 5.43%
Like sales taxes, excise taxes hit people with lower incomes hardest since any money they spend on items subject to excises taxes will generally make up a larger share of their overall budgets compared to high-income people.
A regressive tax is often flat in nature, meaning that the same rate of tax applies (generally) regardless of income. These taxes include most sales taxes, payroll taxes, excise taxes, and property taxes.
Regressive taxes take a larger percentage of income from low-income earners than from middle- and high-income earners. As such, the tax burden decreases with regressive taxes as income rises. It is contrasted with a progressive tax, which takes a larger percentage from high-income earners.
Payroll tax rates are highest for the poor and lowest for the rich. Bar graph showing that Americans making less than $100,000 pay 9 percent to 14.1 percent of their incomes in federal payroll taxes, while those making $1 million or more pay just 1.9 percent.
The only thing that hurts more than paving an income tax is not having to pay an income tax.
Do regressive taxes hurt poor people and people with low incomes?
Unlike our progressive income tax, taxes on imports (tariffs) are regressive and take a bigger percentage of income from poor families. Lower-income individuals and families thus may bear a significant burden from tariffs, while those of more comfortable means are not as affected.
Regressive taxes take a higher percentage of income from poorer people than wealthier people. Sales taxes are one example.
A regressive tax may seem to be an equitable form of taxation because everyone, regardless of income level, pays the same fixed amount. In reality, however, such a tax causes lower-income groups to pay a greater proportion of their income than higher-income groups pay.
In 2020, the average American contributed 8.9% percent of their income in state taxes. Alaska had the lowest average overall tax burden – measured as total individual taxes paid divided by total personal income – at 5.4%, followed by Tennessee (6.3%), New Hampshire (6.4%), Wyoming (6.6%) and Florida (6.7%).
As of 2023, nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax.
Among the 43 states that do levy income taxes, Tennessee has the lowest income tax burden. Among the 43 states that do levy income taxes, Tennessee has the lowest income tax burden. In 2020, the average Tennesseean paid just $8 — or 0.02% of their income — in state income taxes.
Overall, the tax system is moderately progressive; rich people pay a higher percentage than poor people, but almost everyone pays substantial amounts. At the very, very top of the income spectrum, however, taxes stop being progressive. Once you reach the top 0.1 percent, effective tax rates actually start going down.
Combining all state and local income, property, sales and excise taxes that Americans pay, the nationwide average effective state and local tax rates by income group are 10.9 percent for the poorest 20 percent, 9.4 percent for the middle 20 percent and 5.4 percent for the top 1 percent, the report said.
Tax Shares in Tax Year 2021
The newly released report covers Tax Year 2021 (for tax forms filed in 2022). The newest data reveals that the top 1 percent of earners, defined as those with incomes over $682,577, paid nearly 46 percent of all income taxes – marking the highest level in the available data.
Though true regressive taxes are not used as income taxes, they are used as taxes on tobacco, alcohol, gasoline, jewelry, perfume, and travel. User fees often are considered regressive because they take a larger percentage of income from low-income groups than from high-income groups.
What are the cons of progressive taxes?
Another issue raised is that progressive taxes might create a lack of motivation for hard work and success. The worry is that if people know that a significant chunk of their earnings will be taxed at higher rates, they might be less inclined to strive for higher incomes or better opportunities.
Progressive taxes take more from those able to pay more. Because this method is based on the ability to pay, it is considered the fairest means of taxation. People with higher incomes pay larger amounts of tax because their taxable income is larger.
How Does a Flat Fax Benefit the Rich? A flat tax means the rich pay a lower tax rate than they would if the tax system included tiered rates. With much higher income, an individual will feel less of a burden with paying taxes.
According to the Tax Foundation (tax foundation.org) for tax year 2019 the top one percent of filers paid 38.8% of all income taxes paid. The top 10% paid 70.8%. In contrast, the bottom 50% paid 3.1%.
If you are single and a wage earner with an annual salary of $40,000, your federal income tax liability will be approximately $4,000. Social security and medicare tax will be approximately $3,000. Depending on your state, additional taxes my apply.
