Regressive and Progressive Taxation

Okay, I have been trying to keep track of the state budget. Unfortunately, a simple summary of the budget still escapes me. The $6.6 billion state deficit seems bad – especially with the lack of revenues for the future in today’s lackluster economy. These news-media sites have been helpful: madison.com, blogs.wispolitics.com/budget/, www.jsonline.com/news/wisconsin/, but even with watching the WisconsinEye.org, I am unsure if the end product is ‘good’ or ‘okay.’

One question that nags me, however, is the tax and fee proposals. The slow economy is struggling to recover so raising taxes might be counterproductive, however, the budget deficit and balanced budget requirement requires higher revenues to match any counter-cyclical government spending. The Legislative Fiscal Bureau produced a memo detailing which changes to the tax code would raise funds. The largest revenue boosts come from creating an additional tax bracket, raising tobacco sales taxes, increasing hospital assessment fees, and imposing higher oil profit taxes.

CDC Calculation, 2002 smoking by income

CDC Calculation, 2002 smoking by income

Other than the new, high income tax bracket, these big tax increases strike me as being regressive. Oil taxes will most likely be passed on to consumers  (perhaps increasing between and up to 6¢), not an inconsequential amount. This especially hurts those with older vehicles who depend on them for work. The hospital assessment fee raises quite a bit of revenue from hospitals. I would hope that these fee increases would be taken from administrative overhead, but costs to health care might increase with the extra fees hospitals must pay. Those with full insurance coverage would be less affected than those without (Badger Care and Wisconsin’s health system seem better able to address low-income health than other states). Additionally, the tobacco sales tax, a helpful sin tax to encourage healthier behavior, unfortunately affects lower-income individuals more than educated, higher-income brackets.

On the other hand, the new high income tax bracket is allowing those who ‘can’ pay to pay. That makes sense, but is stirring up the usual opponents to progressive taxation. Perhaps, then, the beneficiaries of these policies are the middle-income earners. Although there are plenty of smaller increases throughout the LFB’s analysis (such as sales tax increases and cell phone fees), these big items leave me confused on where the bigger picture is going – progressive or regressive?

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About Nate

Graduate student at University of Wisconsin-Madison. I am studying public policy, administration, and law. More importantly, I am getting the La Follette School Student Association out and onto the blogosphere. Here we come!
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