Defaming Nebraska Tax Reform

Going EPIC on "Regressive"

Update, keep in mind, if you do not pay property tax on time, you are charged interest on the delay of payment.

No sooner had the words of a sales tax left the mouth of Governor Pillen, than the attacks came hard and heavy accusing the sales tax of being “regressive”.

However, all taxation is going to be regressive to the poor as they have few means or incentives to avoid such taxation. The problem is, do the poor have the ability to pay? A consumption tax is based on the ability to pay. Merely calling the sales tax, which is similar to consumption tax,  “regressive” is a very faulty argument. Yet economists use the term because it unjustly defames such taxation merely because poor people are able to pay it.

A poor person can go into Goodwill and buy a pair of pants for as little as $4. This results in 28 cents of tax (combined Nebraska and Omaha sales tax is 7 percent). There is no incentive to avoid this tax of 28 cents. It is too small and can buy few things. In fact, there might be a penny dish where a few pennies can be picked up to pay off some of the tax.

Compare this to the wealthy person who goes into a Duluth Trading store to buy a pair of pants at a cost of $90. This would incur $6.30 in tax. There are many things which can be bought at $6.30 such as a couple gallons of gas or numerous food items, or a small toy. This creates an incentive for the shopper to wait for a sale or shop elsewhere or choose a different item. Perhaps a 10 percent sale occurs dropping the jeans down to $81, saving $9, which makes the tax $5.67,  a 63 cents reduction in tax due to the sale. Notice, the 63 cents savings is more than twice the amount of the 28 cents tax the poor person paid! How unfair! At a 10 percent discount, the savings eats the previous sales tax of $6.30. An argument can be made that the wealthy consumer did not pay any tax economically as the item was on sale. At the same time, the poor person has few means or incentives to reduce their tax of 28 cents! Oh, life is soooo unfair! In actuality, the rich consumer paid 20 times the amount of sales tax as the poor person in this example.

Back to the poor person: they have a completely different set of incentives. At $4 a pair, the poor person can buy three pairs of pants! A total of $12 and 84 cents of sales tax! The "regressive tax" argument states the poor person bought more taxed items compared to the rich person and bought none of them on sale, therefore is being oppressed! When this gets hashed into an academic study, the assumption will be the rich paid a measly $5.67 on $90 of goods while arguing the poor person paid a punitive 84 cents on a $4 item. In other words, the numbers are skewed to make the sales tax appear punitive when it is not. Sales taxes are actually an anonymous tax which does not care if you are rich or poor, and asks nothing of you until you have the ability to pay which means it cannot be regressive in any meaning of the word. If don’t have the ability to pay, the tax is irrelevant.

Calling sales taxes "regressive' is pure academic rhetoric because the poor do not view such taxation on small purchases as an obstacle to obtaining items. Property taxes, however, are regressive in large part because there is little transparency, and interfere with the ability to pay rent or buy a home. Many renters are indirectly paying more in property tax on a dollar-to-foot ratio compared to some homeowners (https://itep.org/whopays/nebraska-who-pays-7th-edition/).

This happens because landlords merely pass their tax costs onto the renter. Property taxes are not anonymous. We know who has to pay property tax and who is exempt and who has the means to pass their cost of taxation onto others. But people are still going to call a sales tax or consumption tax "regressive" but what is really regressive is to only tax the rich and force the rich to make everyone else cover the costs of the actual expenses of taxation. This is precisely what landlords and grocery stores do with their property taxes: make them regressive by passing the tax cost on to their renters and consumers.

As property taxes and the EPIC option proposal gain heat, you will hear more attacks of "regressive taxation" versus "progressive taxation" or of the rich "paying their fair share".  Those using such terms have no interest in reform, no interest in the ability to pay a tax, and no interest in transparency or privacy in taxation. One final note about the example above: under the EPIC option consumption tax (https://epicoption.org/), the poor person above buying those three pairs of pants would pay no tax because they are used items, therefore, no 'regression' at all. Hurray for EPIC!   I wonder what they will do with their 84 cents of savings.