<p>This seems to be more a question of definition than anything else. Wikipedia says that a regressive tax rate decreases &quot; as the amount subject to taxation increase&quot;. One of the most regressive taxes in history is the poll tax, which caused countless tax riots down through the ages. What is the &quot;amount subject to taxation&quot; for a poll tax? Well, the income of the person in question. Since a poll tax is a fixed tax per person, the lower the income of the person, the higher percentage of their income they need to spend on the tax.</p>
<p>Sales tax is the same way. If you define the &quot;amount subject to taxation&quot; as the wealth or income of the buyer, you see that its indeed a regressive tax. If instead you take the &quot;amount subject to taxation&quot; as the price of the sale, then you might conclude the tax isn't regressive. However, in usual usage the amount in question is the total income of the person being taxed, not particularities on the items being taxed.</p>
<p>Sales taxes are regressive, cause large deadweight losses, and provide an inventive for companies to vertically merge (to avoid repeated sales tax).</p>
<p><a href="https://governology.substack.com/p/taxes" rel="nofollow noreferrer">Read more about this here.</a></p>

CC BY-SA 4.0
2023-07-21T21:32:01.243Z
2023-07-21T21:32:01.243Z
Governology
<p>It depends on the definition you want to use. You can define a regressive tax as the wiki says, in which case a sale tax would not match. </p>

<p>But the goal of definition of different class of taxation is to assess the impact on person being taxed. Without considering income the above definition becomes moot. Sure the tax is proportional (fixed share of tax on any price) but it's effect on those who pay it is different.</p>

<p>The first definition is derived , I believe, in the context of income taxes in which the income is being taxed and the definition matches it's intuitive notion. 
Some taxation system are subject to the requirement that the system as a whole should be progressive, I.e the total tax burden should increase with income. In this context is natural to think that sale taxes are regressive, while they don't match the formal definition.</p>

CC BY-SA 3.0
2016-07-07T16:03:33.210Z
I think this is the right answer -- thanks for your insight. I also think it points out a weakness in our field. We strive for economics to be a positive science, and yet there's no universal definition of a regressive tax.
Shane
CC BY-SA 3.0
2016-07-07T15:07:06.543Z
2016-07-07T15:07:06.543Z
Three Diag
<p>There are competing definitions of regressive taxes out there:</p>

<p><strong>On <a href="https://en.wikipedia.org/wiki/Regressive_tax">Wikipedia</a>:</strong> </p>

<blockquote>
  <p>A regressive tax is a tax imposed in such a manner
  that the tax rate decreases as the amount subject to taxation
  increases.</p>
</blockquote>

<p><strong>In a textbook I use (Case, Fair, and Oster's <em>Principles of Economics</em>):</strong></p>

<blockquote>
  <p>A regressive tax is a tax whose burden, expressed as a percentage of income, decreases as income increases.</p>
</blockquote>

<p>By the Wikipedia definition, a sales tax would technically be a proportional tax as the rate is fixed regardless of how the base (consumption) changes.</p>

<p>However, by the textbook definition, and assuming that households with lower income consume a greater percentage of that income than households with higher income (i.e. have lower savings rates), a sales tax with a fixed rate would be regressive.</p>

<p>You might be inclined to suggest that the textbook was defining it specifically for income taxes where the Wikipedia article is defining it generally. Actually, though, the authors of the text make it clear they mean their definition to be general. They say that they define it in terms of income because "all taxes are ultimately paid out of income." I think that statement is a bit imprecise, but whatever. They go on to show an example that demonstrates that sales taxes are regressive (conditional on lower-income households saving less).</p>

<p>I agree with them on an intuitive level that sales taxes are regressive. But then why has Wikipedia decided on a definition that is independent of income, with one consequence being that sales taxes are proportional?</p>

CC BY-SA 3.0
2016-07-06T19:21:00.710Z
You're oversimplifying. Sometimes "critical goods" such as food have a reduced sales tax rate or are even exempt from sales tax or "luxury goods" have a higher rate. Also, you are assuming that people of all incomes spend the same percentage of their income and that's not true. I'm pretty sure I pay sales tax on a higher percentage of my income than Bill Gates did.
David Schwartz
CC BY-SA 3.0
2016-07-07T02:57:20.400Z
@DavidSchwartz I specifically mention my assumption that people with higher incomes have higher saving rates (which you agree with). And let's abstract from sales tax exemptions -- I mean this as a precise theoretical question regarding definitions. The question is whether, even with the assumption, the Wikipedia definition would allow us to call a sales tax regressive. From my reading, it would not, and I find this odd.
Shane
CC BY-SA 3.0
2016-07-07T08:13:40.607Z
Definitions don't work that way. Definitions are not tests that you can apply to things to see if they "really are" instances of the thing defined. You cannot look up "car" in the dictionary and find out some test you can use to tell what is a car and what is not. If you keep reading that very Wikipedia article, it explains that in the second paragraph, "if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, the tax may be considered regressive". Regressiveness is a judgment, not a precise test.
David Schwartz
CC BY-SA 3.0
2016-07-07T15:27:08.333Z
@DavidSchwartz Sir I do hope your last sentence is intended as humor.
Giskard
CC BY-SA 3.0
2016-07-07T15:28:56.647Z
@Shane Come to think of it this question is primarily opinion based because it asks us to speculate about the reasoning of Wikipedia...
Giskard
CC BY-SA 3.0
2016-07-07T15:58:49.723Z
@denesp Yikes! I feel like I've fallen into a Monty Python film! The last question in the text on Wikipedia's reasoning is opinion-based. It's really an expression of frustration, even. But the key question of whether a sales tax is regressive *shouldn't be* opinion-based. I feel like this is why all the hard sciences make fun of us!
Shane
CC BY-SA 3.0
2016-07-07T16:11:01.273Z
@DavidSchwartz I respect your opinion, but I disagree with it. The quote you mention does not mitigate the contradiction because the poor do not consume more than the rich. Quite the opposite. The poor do generally consume a greater percentage of their income then the rich, but they do not consume more. So I maintain that by the Wikipedia definition, a flat sales tax is proportional, despite the fact that most of us would think of it as regressive. Regarding the definition of a car, I would say that I might struggle to define it, but, as Potter Stewart might say, *I know it when I see it* :P
Shane
<taxation>
Are sales taxes regressive?
Shane
# Are sales taxes regressive?

(Asked by: username_0 on 2016-07-06)

There are competing definitions of regressive taxes out there:

**On [Wikipedia](https://en.wikipedia.org/wiki/Regressive_tax):**

> A regressive tax is a tax imposed in such a manner
> that the tax rate decreases as the amount subject to taxation
> increases.

**In a textbook I use (Case, Fair, and Oster's *Principles of Economics*):**

> A regressive tax is a tax whose burden, expressed as a percentage of income, decreases as income increases.

By the Wikipedia definition, a sales tax would technically be a proportional tax as the rate is fixed regardless of how the base (consumption) changes.

However, by the textbook definition, and assuming that households with lower income consume a greater percentage of that income than households with higher income (i.e. have lower savings rates), a sales tax with a fixed rate would be regressive.

You might be inclined to suggest that the textbook was defining it specifically for income taxes where the Wikipedia article is defining it generally. Actually, though, the authors of the text make it clear they mean their definition to be general. They say that they define it in terms of income because "all taxes are ultimately paid out of income." I think that statement is a bit imprecise, but whatever. They go on to show an example that demonstrates that sales taxes are regressive (conditional on lower-income households saving less).

I agree with them on an intuitive level that sales taxes are regressive. But then why has Wikipedia decided on a definition that is independent of income, with one consequence being that sales taxes are proportional?

**Tags:** taxation
> **Comments:**
> **username_1**: You're oversimplifying. Sometimes "critical goods" such as food have a reduced sales tax rate or are even exempt from sales tax or "luxury goods" have a higher rate. Also, you are assuming that people of all incomes spend the same percentage of their income and that's not true. I'm pretty sure I pay sales tax on a higher percentage of my income than Bill Gates did.  
> **username_0**: @DavidSchwartz I specifically mention my assumption that people with higher incomes have higher saving rates (which you agree with). And let's abstract from sales tax exemptions -- I mean this as a precise theoretical question regarding definitions. The question is whether, even with the assumption, the Wikipedia definition would allow us to call a sales tax regressive. From my reading, it would not, and I find this odd.  
> **username_1**: Definitions don't work that way. Definitions are not tests that you can apply to things to see if they "really are" instances of the thing defined. You cannot look up "car" in the dictionary and find out some test you can use to tell what is a car and what is not. If you keep reading that very Wikipedia article, it explains that in the second paragraph, "if the activity being taxed is more likely to be carried out by the poor and less likely to be carried out by the rich, the tax may be considered regressive". Regressiveness is a judgment, not a precise test.  
> **username_2**: @DavidSchwartz Sir I do hope your last sentence is intended as humor.  
> **username_2**: @Shane Come to think of it this question is primarily opinion based because it asks us to speculate about the reasoning of Wikipedia...  
> **username_0**: @denesp Yikes! I feel like I've fallen into a Monty Python film! The last question in the text on Wikipedia's reasoning is opinion-based. It's really an expression of frustration, even. But the key question of whether a sales tax is regressive *shouldn't be* opinion-based. I feel like this is why all the hard sciences make fun of us!  
> **username_0**: @DavidSchwartz I respect your opinion, but I disagree with it. The quote you mention does not mitigate the contradiction because the poor do not consume more than the rich. Quite the opposite. The poor do generally consume a greater percentage of their income then the rich, but they do not consume more. So I maintain that by the Wikipedia definition, a flat sales tax is proportional, despite the fact that most of us would think of it as regressive. Regarding the definition of a car, I would say that I might struggle to define it, but, as Potter Stewart might say, *I know it when I see it* :P  

---

## 2 answers

### Answer by username_4 on 2016-07-07. Score: 7 | Accepted answer

It depends on the definition you want to use. You can define a regressive tax as the wiki says, in which case a sale tax would not match.

But the goal of definition of different class of taxation is to assess the impact on person being taxed. Without considering income the above definition becomes moot. Sure the tax is proportional (fixed share of tax on any price) but it's effect on those who pay it is different.

The first definition is derived , I believe, in the context of income taxes in which the income is being taxed and the definition matches it's intuitive notion.
Some taxation system are subject to the requirement that the system as a whole should be progressive, I.e the total tax burden should increase with income. In this context is natural to think that sale taxes are regressive, while they don't match the formal definition.

> **Comments:**
> **username_0**: I think this is the right answer -- thanks for your insight. I also think it points out a weakness in our field. We strive for economics to be a positive science, and yet there's no universal definition of a regressive tax.  

---

### Answer by username_3 on 2023-07-21. Score: 0

This seems to be more a question of definition than anything else. Wikipedia says that a regressive tax rate decreases " as the amount subject to taxation increase". One of the most regressive taxes in history is the poll tax, which caused countless tax riots down through the ages. What is the "amount subject to taxation" for a poll tax? Well, the income of the person in question. Since a poll tax is a fixed tax per person, the lower the income of the person, the higher percentage of their income they need to spend on the tax.

Sales tax is the same way. If you define the "amount subject to taxation" as the wealth or income of the buyer, you see that its indeed a regressive tax. If instead you take the "amount subject to taxation" as the price of the sale, then you might conclude the tax isn't regressive. However, in usual usage the amount in question is the total income of the person being taxed, not particularities on the items being taxed.

Sales taxes are regressive, cause large deadweight losses, and provide an inventive for companies to vertically merge (to avoid repeated sales tax).

[Read more about this here.](https://governology.substack.com/p/taxes)


---

