There are multiple issues a government needs to address when deciding on how to design a tax:
The OP only mentions one aspect... the
distributional impact of the tax... Other issues (not exhaustive) are:
- Dead-weight loss (and more specifically, the
Excess burden of taxation)
- External efficiency (like the
Double Dividend)
- Revenue Maximization (like the
Laffer curve)
The above issues might contradict or complement each other... Take a tax on gasoline, for instance:
The demand for gasoline is relatively inelastic, meaning that taxing gasoline will likely yield lower dead-weight losses to society per dollar raised than taxing highly elastic luxury goods (this would also suggest that the revenue maximizing level of taxation would be quite high, at least in the short run*).
... At the same time, a double dividend (though also reduced in scope due to the very same tax in-elasticity) can be achieved as gasoline generates negative externalities through pollution.
On the other hand, a gasoline tax is somewhat* regressive, as a low-income household likely spend a larger percentage of their income on gasoline than a high-income household.
*In the long run, however, a lot of people would likely shift to a different mode of transportation if faced with very high gasoline taxes, thus reducing the revenue...
**However, a gasoline tax is actually progressive wrt. people who cannot afford a car (or any motor vehicle), as they are thus 100% exempt from the tax...
It does all get complicated when looking at all the marbles in the bag.
That is why I look at one marble at a time as all I want to throw away are the cracked ones.
That seems to be what this state did.
As the Tax Research briefing argues, a regressive tax is almost universally agreed to be one where the proportion of an individual’s income expended on that tax falls as they progress up the income scale. VAT is a regressive tax. - See more at:
10 May 2016, 8:52 am
