The magic of regressive taxes

To the Editor;
Taxed enough already? Well, if the State’s new budget proposal gets passed, for working people the answer is no — and your taxes will go up. If you are very well off the answer is yes — and your taxes will go way down.
In our last letter we asked how it can be that the average Maine family, earning $37,500 pays about 9.5 percent of their income in state and local taxes, while the family earning $800,000 pays only about 7.5 percent of their income in state and local taxes.
The answer lies in the magic of regressive taxes — those where poorer people pay a greater share of their income than those more well off.
To understand how this works in Maine, consider that most of the state’s tax intake comes from two taxes — sales taxes and income taxes. As we all know, sales taxes are assessed at 5.5 percent (or more) on virtually everything we buy (except groceries and prescription drugs). While we all pay the same rate, lower income people spend a much greater share of their family income on things that are subject to sales taxes. People making $800,000 or more per year spend only a very small portion of that income in sales taxes — after all there are only so many cars, clothes, deli foods, etc. that any family can buy.
In addition, the family earning $37,500 is far less likely to spend time outside of the state than the rich family. With all of this, the working family ends up paying about 4 percent of their total income in sales taxes. The rich family? They pay less than 1 percent of their income in sales taxes.
The other big state tax in Maine is the state income tax. Unlike sales taxes, where everyone pays the same rate — on every taxable dollar, income taxes are (mildly) progressive — the well-off pay a greater proportion of their income than working families. For both the working and the rich families the income tax is $0 up to a certain amount of income (for a married couple filing jointly, the first $23,200 is not taxable. In addition, unlike sales taxes, the more income reported, the higher the rate. The working family would pay 5.8 percent of everything over $23,200. The rich family would pay 7.15 percent of everything over $75,000.
Progressive taxes, such as the state income tax, follow Adam Smith’s rule that people should pay “in proportion to their respective abilities.”
The budget currently up for consideration in Augusta calls for significant reductions in income taxes — leading, if the governor has his way, to the eventual abolition of all income taxes. So, the working family that pays $200 in income taxes would save $200 every year. The family in the upper 1 percent, reporting taxable income of $500,000, would save about $35,000 every year. Who benefits? What about the $1.7 billion hole that this would put in the State budget? Well, we would likely see a shift of a lot of that to sales taxes, and, of course, we’d probably have to cut services that we could no longer afford — the working family would get hurt twice over.
The net effect would be to make life a lot tougher for working people. Why would any responsible government that claims to represent all the citizens (in an old and relatively poor state) do such a thing? We hear lots of plausible reasons for this shift. More on those later.
Your thoughts? Email me at any time at chrism@roadrunner.com
Chris Maas
Dover-Foxcroft