Greg Roach's Berkshires Blog
Thursday, February 19, 2009
  Define Regressive
The Mayor's speech at the Chamber breakfast had a few interesting points, but this one bugged me:
".... the property tax, which is the most regressive tax."
Umm, no. The sales tax is by far the most regressive because poor folks pay a far higher portion of their income into it. Conversely property tax is based upon the assessed value of property. The owner, if she/he cannot afford the taxes, usually has the option of selling. That doesn't hold true when you are paying sales tax on a jug of laundry soap.

Property taxes can, indeed, be unkind to those who lose income or whose properties increase in value faster than inflation, but that is hardly considered regressive taxation.

That said, the mayor's larger point was about the meals and lodging tax. I might be the only chef in town who says "go ahead and raise it", but 2% of a typical bill at a restaurant isn't going to bankrupt anybody.

And consumers always have the option of learning how to cook their own groceries - tax free.

(Link fixed)
 
Comments:
The mayor's claim ("the property tax... is the most regressive tax") appears to be an overstatement, because the sales tax might be slightly more regressive than the property tax, but it is also not at all certain that it is wrong.

You can't really avoid paying property taxes by selling your house, since renters also pay the tax indirectly (landlords generally pass through such costs). And shelter is as much a necessity as almost everything subject to the sales tax, since food is not taxed, except in restaurants. (If poor people's most basic needs are food, shelter and clothing, it's only the shelter they're now paying taxes on.)

Restaurant sales are already taxed as much as other items (5%). Since restaurant eating is almost wholly discretionary, it is subject to elastic demand (demand will go down by more than 1% for each 1% increase in cost). Restaurants also put more of their money into the local economy (through rent and wages) than do most other taxed sales (which tend to go to manufacturing states and to China), so raising meal taxes is likely to be counterproductive for the cities and states which do so.
 
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