Day: 2015/02/16

It’s Time to Give Up on Solving ‘Income Inequality’

Anyone who needs a reason to retire the term “income inequality” need only look to the Institute on Taxation and Economic Policy (ITEP), which recently released its fifth edition of its “Who Pays?” report on the impact of state taxes on household incomes. As with previous years, it dispiritingly finds that most states’ taxation structures are regressive, which means poor and middle-income households pay a higher proportion of their incomes in taxes than the highest earners.

As for specific taxes, the ITEP concludes that income taxes, particularly on individuals and corporations, are the most progressive, while sales and excise taxes are the most regressive. On property taxes, sandwiched between the two, the report states:

Overall, the property tax is a regressive tax.

What the ITEP is saying, in other words, is that taxes on property fall hardest on households that don’t own property. If this sounds like nonsense to you, it’s because it is. Usually we think that taxes fall first on that which is being taxed, so households and businesses with lots of property ought to be paying the bulk of state property taxes. Or, as economist Mason Gaffney wrote in his 1971 paper, “The Property Tax Is a Progressive Tax” (pdf), “To own property is to be rich, in the measure that one owns, and to tax the quality of richness should not be presumed to burden the poor more than the rich.” The ITEP begs to differ.