In the last few months, Seattle’s chattering class has become enamored of the idea of “regressive taxation,” which they are now tossing off in argument as often as possible, regardless of whether or not it actually applies.

You can try it yourself at your next cocktail party. When someone mentions a tax you don’t like, just call it “regressive,” and sound smart while at the same time painting your interlocutor as a heartless Ayn Rand acolyte. Keep in mind that when one says, “that’s a regressive tax,” it’s best said with a slightly condescending affect, the way one might say, “I don’t watch TV.”

The constant lefty one-upmanship on this issue has led to some humorous exchanges, such as this one at the Seattle City Council, captured by Erica Barnett, wherein Jean Godden accuses Nick Licata of proposing a “regressive” tax on parking:

What’s particularly humorous about this exchange is that Licata’s whole proposal was predicated on being more progressive than the one Godden supports (a flat license fee). If it feels like we’ve entered a hall of mirrors, it’s because everyone’s a little confused about their terms. A true progressive tax is like the federal income tax: not only do you pay more as your income goes up, but the rate you pay goes up as well. Nothing like that has been proposed to fund bus service. As far as I know, there are no truly progressive taxes in Washington State at all. Someone can correct me in the comments if I’ve gotten that wrong.

Progressivity is but one one of many ways to evaluate a given tax. Some call the $60 VLF “regressive” because it doesn’t tax BMWs more than Fords. But that ignores the fact that the poorest don’t own a car, but do ride the bus. So any tax on cars, flat or not, is redistributive, if not progressive.

Likewise cigarette and gas taxes are highly “regressive” using the terms we’ve defined above. And yet very few liberals would pooh-pooh those taxes on that basis, because they understand that certain taxes are useful at reducing negative externalities. And while a tax on car ownership may have similar goals, framing a VLF explicitly in that manner would be a political disaster.

At the end of the day, the bus system needs more money, and poor people disproportionately ride the bus. Therefore, nearly any bus tax is going to tend to benefit the poor more than it costs them. In fact, this is true of nearly all government spending at the state and local level. Higher tax revenues help the less well-off, regardless of how the taxes were collected. Matt Yglesias made this point well several years back:

The most important thing is to just have lots of tax revenue. Public expenditures are pretty progressive in their impact everywhere, and the difference between a very progressive and a not-so-progressive system is mostly that the more progressive ones are bigger. So while liberals have no reason to give in to conservative demands to make the existing revenue scheme less progressive—by adopting a flat tax, say, or replacing the income tax with a consumption tax—there’s very good reason to basically be looking for revenue by any means necessary. If it’s easier, politically, to get some center-right politicians on board for new consumption taxes than for higher income taxes, then it’s incumbent on progressives to walk through that door and take the revenue.

Indeed. All else being equal, progressive is better than regressive, especially in a state with the dubious distinction of having the most regressive tax system in the country. But getting more revenue is even more important.

38 Replies to “Regressive Taxes Aren’t the Worst Thing in the World”

  2. It might help to reject the very notion that something like a VLF is a “regressive tax.” If its overall benefit is progressive, and surely funding buses is progressive, then we should call it what it is: a progressive policy.

    There is a spectrum of progressivity and an MVET is more progressive than a VLF, but both are much more progressive than cutting service.

    1. It might help to reject the very notion that something like a VLF is a “regressive tax.” If its overall benefit is progressive, and surely funding buses is progressive, then we should call it what it is: a progressive policy.

      It’s also a progressive tax, albeit an imperfectly and weakly progressive one. Rich people tend to own more cars than poor people. Granted, it’s a weaker measure of wealth than how much money you earn, or even how much your property is worth, but the line still points in the right direction.

      1. There’s a fairly specific definition of “progressive” in taxation, and it’s that the portion of someone’s income that they pay generally goes up as income goes up.

        I think some people might substitute wealth for income on both sides of the equation, especially for asset-based taxes, and some people use “disposable income” by subtracting something like poverty-level cost of living from income everywhere it’s used. These things are generally in the spirit of the definition.

        Unless number of cars owned tends to rise more than linearly with income, disposable income, or wealth, the VLF is not a progressive tax by any definition. In fact, the number of cars owned almost certainly rises sub-linearly and the tax is therefore regressive.

        Robert’s point is truly important: the progressiveness of the tax’s benefit far outweighs the regressiveness of the tax. The gross value of bus service subsidy doesn’t generally change much at all with income or wealth, so its value as a portion of income or wealth scales up greatly as those go down, making it a very income- or wealth-progressive service. Overall I believe the progressiveness of the policy outweighs the regressiveness of the tax, particularly considering the tax’s fairly small magnitude, making the policy overall a progressive one.

      2. There’s a fairly specific definition of “progressive” in taxation, and it’s that the portion of someone’s income that they pay generally goes up as income goes up.

        I’m perfectly aware of that. Obviously, the perfect way to do it would be to tie tax rate to income. But “number of cars owned” correlates weakly but positively with income. (Unlike, say, cigarette taxes, which correlate negatively with income).

    2. +1 Exactly. I’ve said it a million times here.

      That’s exactly why I keep going back to whether a tax is pigouvian or not in nature. Is there a progressive result from the tax, that’s the question. Not is it a matter of how “fair” the tax is. You point out exactly that it becomes an endless debate about how “progressive” a tax is in how it is assessed, rather than the resulting social, environmental, and economic benefits of it.

      The VLF is superior to a sales tax, property tax, or even an income tax when we talk about its nexus to funding transit and discouraging driving/car ownership.

      3. A car tab tax does not discourage driving or car ownership. It is a property tax. It also is regressive.

        Tax large employers based on payrolls. Tax capital gains (from other than residence sales and only to the extent the gain in any one year exceeds $40,000). Those are progressive taxes.

  3. Finland has “progressive fines” as well as progressive taxes. There’s an idea in the US that fines should be imposed as punishment, not a revenue source, but a few traffic cameras in Medina and Magnolia would pay for a few busses.

    2. Even viewing them as fines, they will be more effective when scaled to a person’s resources. Rich people can handle paying a $200 ticket, for poor people that can be disastrous. The relative fear of getting a ticket is then obviously very different.

    3. Switzerland employs a progressive fine on speeding tickets. Their reasoning (justified) is that wealthy people will simply not care about the speeding fine and treat the Swiss highways as if they were the German Autobahn. And simply setting a fine high enough to discourage these wealthy speeders would bankrupt anybody else who broke the limit.
      Thus the case in 2010 of the Swedish man who was fined just over $1 million for driving 290 km/h in a 200 km/h zone.

      1. I doubt the speed limit was 200 km/h. That’s around 120 mph! In fact, the article mentions “the [speeder] escaped being clocked by several older cameras that are limited to 125 mph”, so apparently 200 km/h was the limit of the speed-tracking radar that triggered the cameras (presumably because the camera designers thought it highly unlikely anyone would ever drive that fast).

        Good luck ever getting such fines imposed in the USA. The right wing (and even the “center” is to the right here, so that means most everyone in the media) would red-bait such a proposal as “communism” or “class warfare”. (That a long-standing capitalist country like Switzerland does it would of course be swept under the rug.)

  4. The irony is that the Bolsheviks of Seattle harp on states like Kansas for reducing its taxes (income), when in fact it has one of the highest property tax rates (2%) in the US. Property tax is the correct and proper way to fund the affairs of the state.

    1. Because relying heavily on property tax worked great for the states of Florida and Nevada after the housing bubble?

      What we witnessed in the recovery from the recession is that the states without income tax and heavily reliant on property tax had a much slower recovery than the states reliant on sales tax and other income sources (oil royalties in TX/AK).

      A diverse revenue stream that includes income tax, property tax, and sales tax is the correct and proper way to fund the affairs of the state.

      1. That’s completely untrue.

        The unemployment rate from the interior states, many of which had high property taxes and little or no income tax had very low unemployment numbers even during the height of the recession.

        States with high income and sales taxes had (and in some cases still have) unemployment numbers higher than the national average.

      2. What? Why don’t we look at some actual info?

        Aside from IL the states with the highest % of tax revenue from property tax are all in the NW not the “interior” states.

        1. NH 64.6% tax income from property tax 4.4% unemployment
        2. NJ 48.4% 6.6%
        3. VT 45.8% 3.5%
        4. RI 45.6% 7.9%
        5. IL 43.6% 7.1%

        US avg. unemployment = 6.2%. RI and IL are both at the top of the list for unemployment.

        Again the states that make it through recessions the best are the ones that have diversified tax revenue sources.

        ND is a bad example because of oil revenue but still there property tax only makes up 20% of total tax revenues. They also have sales tax (21%), Income tax (10%), and corp. tax (2.5%).

        Second lowest unemployment is Nebraska; property tax (36.8%), sales tax (21.7%), Income (21%), Corp. Income (2.1%). Hardly dependent on property tax.

      4. Of course the unployment rate is low in states that have terrible weather. It limits the number of people willing to move there.

      6. Look up Kansas 2013 Employment Benefits Changes. You will notice that they made it more difficult to get unemployment benefits. Usually, if you can’t qualify as unemployed, you are also not counted as unemployed for statistical reporting.

      7. What happens to your property tax revenue if all your $1 million homes become $100,000 homes (who may not be occupied at that)? Your tax revenue goes down 90%. Detroit is a fine example of that, took a spin on the wheel of misfortune.

      8. John Slyfield says: What happens to your property tax revenue if all your $1 million homes become $100,000 homes (who may not be occupied at that)? Your tax revenue goes down 90%.

        David Goldstein, of Horsesass.org says no, that’s not what happens. From this blog post: http://horsesass.org/if-you-support-universal-preschool-vote-yes-on-prop-1/ Here’s the paragraph in which Goldy explains property tax in King County:

        From a budget writer’s perspective, the property tax is the best tax ever, because if done correctly, it always brings in almost exactly the amount of money projected. That’s because, unlike the stupid, stupid sales tax, budget writers don’t actually set a rate and just hope the money comes in, they request a dollar value—for example, $47.9 million a year for the first six years in the case of the interlocal agreement that accompanies Prop 1—and then the county assessor adjusts the property tax rate annually based on current assessed value, and subject to statutory limits, in order to generate the requested revenue. If property values rise from year to year, the rate goes down; if property values fall as they did when the real estate bubble went pop, the rate goes up. But the MPD is almost guaranteed to generate that $47.9 million a year.

      9. But how does that apply when doing state-to-state comparisons? Without footnotes to tables like the one John linked to, you don’t know which areas do their property taxes like WA state does, and which areas have property taxes as a specific percentage of the assessment.

        WA may have lower rates in the table because as our property tax base goes up, the effective rate goes down.

  5. “The most important thing is to just have lots of tax revenue.”

    Well at least Yglesias is honest about the progressive agenda.

    1. Not a particularly insightful comment. The point is that we should pay for what we want, and the voters of this city have made it clear that they want more transit. So yes, there should be “lots” or said another way: “enough” tax revenue to deliver the services the public wants.

      2. It’s still decidedly clear with regards to the City of Seattle itself, where Prop 1 passed with flying colors. That’s not a direct help for us outside the city limits, but it’s still true.

  6. And yet states that had all three or more types of taxes still were broke after the recession. I think the key here is being prudent with the state/city finances rather than clamoring we need new taxes all the time.

    Sometimes increases are warranted but it’s a knee jerk response by some groups anytime they are short of funds.

    More importantly when taxes are raised for infrastructure projects, can we please stop the process of immediately pledging all revenue toward bond repayments and making sure that some taxes are going for maintenance purposes. It’s horrible cash flow management. This is mostly in in relation to WSDOT.

  7. At least you admitted that poor people disproportionally ride transit which is the problem…..or the real reason why transit is rarely funded voluntarily. Until all transit is seen as a viable alternative to a standard car with air conditioning and the lack of smelly poor people, you will never win over the wealthy. You know…the people who can actually pay for the system.

    1. It’s “public” transit. “Smelly poor people” are part of the public. I wrote yesterday about how we could address homelessness in a more fundamental way.

    2. Silly argument. Plenty of wealthy portions of Seattle and King County support transit. I would actually argue that wealthier parts tend to favour transit funding over working class and lower middle class parts of King County and Seattle. You need not look further than the results of Prop 1.

  8. That point by Yglesias is – as with most of his commentary -a bit glib. A consumption tax on things poor people desperately need is a bad idea, even if it comes with more revenue, and not all expenditure is progressive.

    A perfect example is lottery tickets. These are the most regressive revenue sources in existence. For a long time, one of the larger recipients of that revenue was the stadium. That’s not a progressive recipient. Imagine lottery tickets being used to fund an opera house, etc. It is a case by case basis and broad statements like “regressive taxes aren’t so bad” aren’t merely unhelpful and trite but could even become ammunition for bad policies.

    1. Before you can discuss any of these metrics, you have to decide what the appropriate population for the region should be and what economic mix do you want.

  9. I think there’s an important corollary to Yglesias’ point. If the justification for regressive taxes is progressive benefits, then we have to be sure that the benefits are actually progressive. Transportation projects tend to have benefits that don’t scale with wealth or income, so it’s hard to find seriously regressive ones. Now if you blow up poor neighborhoods to provide access to downtown from places that the displaced people are excluded from living in by discriminatory housing policies, that’s a regressive benefit at least at the lower end of the income/wealth scale… and it basically takes a conspiracy to get there — the mass conspiracy of racism. Most mass transit, especially operations but also infrastructure that make operations more efficient, is a super-progressive benefit.

    But this tends to be at odds with “transit for development”… either for something like the SLU Streetcar, an expensive service installed within a neighborhood whose redevelopment is mostly upscale, or when desirable service in a poorer neighborhood raises the specter of gentrification. I believe current gentrification trends are driven by larger forces than transit, and that Link is a slam-dunk progressive benefit (probably every rail line ST has ever studied studying is a clear progressive benefit, regardless of its wisdom otherwise — it’s not a very high bar to meet, even the f’ing DBT is probably a progressive benefit if you compare to a suitably nihilistic baseline). But the form of the counter-argument is pretty easy to see, and it plays all up and down the income scale to people that are averse to change.

  10. Pingback: Open Thread 8-4-2014 | HorsesAss.Org

  11. Yesterday 8/4/2014 no air-conditioning on the bus I have been riding for 6 years. Air has never been a problem. Coincidently my wife’s bus yesterday, she been riding for 6 years, no air conditioning. I asked the bus drive what was the problem. He said “when the bus sits in the sun it’s hard to cool them down. Guess what that’s BS. Has Metro told the drivers to turn off the AC to conserve on fuel? This is the only possible explanation I can come up with and if it is how petty.

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