Until recently, I wasn’t aware that “progressive” had an opposite. Surely, many Democrats would prefer that Republican or conservative were seen as opposites of progressive, but they’re not. “Regressive,” I now know, actually is the opposite of progressive, at least in taxes. (And in hindsight, I feel dumb for not having thought of that.)
This is a distinction I didn’t know would ever matter, and perhaps it never will. Nonetheless, it’s useful as at least a few presidential candidates–mostly Republicans, and none of the frontrunners–are promoting wholesale tax reform, like the “FairTax.”
Before we go too far, a brief introduction. In the simplest terms, taxes can be progressive, proportional, or regressive. Income tax in America is progressive, in that the more you earn, the more you (theoretically) pay–both in pure cash value and in proportion to income.
A proportional tax is something like conventional sales tax, in which all citizens pay the same percentage. That means that regardless of income, all citizens are effectively charged the same tax for their purchases (this fluctuates geographically, but that’s a separate issue.)
Thankfully their are no widespread and regressive taxes that I can use as an example. The rate of a regressive tax decreases as income increases. Which means that, if assessed on income, hedge fund manager are taxed less than their secretaries. This is currently true, but it is generally considered a problem with the tax-code rather than good policy.
Instinctively, I think most Americans would feel that progressive taxes are ideal, fixed taxes reasonable depending on circumstances, and regressive taxes barbaric. Our tax code usually supports this idea, though some interesting issues crop up when one looks critically at these distinctions.
The sales tax as it currently exists could be considered regressive. After all, on goods bought under the tax, the extremely poor and the extremely wealthy have to buy similar quantities of essentials–food, toiletries, clothes. Yet, in relation to income (or wealth), richer people pay a lower proportion or their net worth than the poor.
This distinction can be made to seem erroneous if one remember that sales tax is a tax on consumption not income. But if it were to become the sole tax administered in the country, the distinction would become a much more important one.
The FairTax, supported most prominently by Mike Huckabee and Ron Paul, is effectively a flat national sales tax. In order to abolish the IRS (which seems to be the basis for most of the plan’s support), FairTax legislation would mandate a flat tax (of 23%) be assessed against all retail sales. This means that against income, the tax would be far more regressive than America’s current income tax structure.
In order to “assure” that this tax is the good progressive kind, the program would entitle all people to a “prebate.” This rebate would assure that there would be effectively no tax paid on “necessities” (calculated from the federal poverty line). This sounds good, but what about those living below the poverty line who fail to receive the prebate? In the situation of the homeless, there seems a dangerous possibility that the FairTax might be regressive. But I have to admit it’s an admirable plan–far more so than I originally saw (see below).
EDIT (11/30/07): This piece contained a factual error, pointed out by Alejandro Gonzalez, regarding the rebate of the FairTax. I had mistakenly believed it to be a rebate only for those below they poverty level; it’s truly a “prebate”–paid in advance–to all citizens to subsidize the price of “necessities.” The final paragraph has been amended to correct the error.