Regressive Taxes Aren’t the Worst Thing in the World

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.