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Taxes are essential for breaking a loop of the rich becoming richer and the poor poorer. Taxes accomplish this through the moderation of potential extreme wealth accumulations by redirecting wealth away from the rich and contributing financially to the public or community good, which redistributes wealth toward the poor. It generally occurs through social welfare expenditures, such as health care and public education. In theory, taxes should bring stability to the economic and social systems.
However, the actual situation is often substantially different from the theoretical perspective; such is the case with regressive tax systems. Almost every local and state government collects more taxes from low-income families than from high-income in relation to their incomes. For example, property taxes in terms of low-income families are vastly disproportionate compared to high-income families (Strand & Mirkay, 2020). In this context, the reduction of after-tax incomes of low-income families tends to be much more profound, which contributes to the disparities in income and overall wealth inequality (Wamhoff & Gardner, 2018).
Among the primary reasons for that is the governments’ heavy reliance on sales and consumption taxes (Strand & Mirkay, 2020). It often affects families with low income because they spend a larger portion of their income on consumables rather than investments or savings. Moreover, if localities and states begin to cut or avoid raising taxes, they still search for additional revenue, which results in an increased reliance on fees – drivers’ licenses and costs or toll fees for roads (Strand & Mirkay, 2020). Consequently, tax cuts do not benefit low-income families but only increase the system’s regressivity.
It is undoubtedly hard to deliver tax cuts where they are needed the most. For the lowest income families, who tend to spend rather than save an increase in their disposable income, the government’s priority should be to support people directly: to create new jobs, protect incomes, and provide funding support to reskill. However, it does not mean tax cuts should be simply ignored – they must be far better targeted.
References
Strand, P. J., & Mirkay, N. A. (2020). Racialized tax inequity: Wealth, racism, and the US system of taxation. Northwestern Journal of Law & Social Policy, 15(3), 265. Web.
Wamhoff, S., & Gardner, M. (2018). Federal tax cuts in the Bush, Obama, and Trump years. Institute on Taxation and Economic Policy, 11.
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