Quote:
Originally Posted by JSH
The definition of a regressive tax is when lower income people pay a greater percentage of their income than higher income people. Sales taxes are regressive because lower income people spend a greater percentage of their income.
The only way not taxing some items would make a sales tax more progressive is if you made those exemptions based on income. Then your sales tax is no longer simple.
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Person A makes $15,000
Person A spends 100% of $15,000 in the following way:
$9600 housing - tax free
$2400 staple food - tax free
$2400 healthcare - tax free
$600 discretionary at 20% =
$120 tax, or 0.8% of income in taxes
Person B makes $100,000 and spends 80% of it in the following way:
$15,600 housing - 20% tax on 6000 of it - $1200
$2400 staple food - tax free
$2400 eating out/not staple - 20% tax $480
$4800 healthcare - 20% tax on $2,400 - $480
$54,800 discretionary at 20% = $10,960
$13,120 total tax, or 13% of income
As I've said before, investments are eventually cashed out. They will get taxed. This is a progressive structure that scales with spending, which is correlated with income.