2014′s Most & Least Fair State Tax
Systems
Tax Structures
• Under the proportional
taxes, each income group
has the same percentage
rate of tax to pay – 10%
• In the progressive
scenario, the lower
income individuals pay
a lower percentage of
their income than do the
• In the regressive tax
upper income. As
structure, the lower income
income increases, so
individuals pay a greater
does the percentage of
percentage of their income in
taxes paid
taxes than do the upper
income individuals
Proportional Taxes
 A proportional tax 
requires the same
percentage from each

person’s income
 A sales tax is an example
9.75%
Sales
Tax
This tax affects the less
wealthy persons more
heavily than it does the
richer ones
The amount taxed on any
item is the same dollar
amount for each, but it
represents a larger share
of the less well-off
person’s financial
resources
Proportional Sales Taxes can be
Regressive on Individuals
Poorer people tend to
spend a greater %age of
their income on basic
living cost items –
– Food, Clothing
– Shelter, Transportation…
in contrast to those at the
higher income levels.
Proportional Sales Taxes, cont.
The spending habits of two
families with incomes of
$50,000 and $75,000 may
differ significantly.
The basic necessities of
life – bread, milk, and
butter, for example – differ
little in quantity purchased
by a family of four at these
income levels.
Example: Proportional Tax -Regressive Effect
• Groceries for a family of 4
(2 teenagers) might cost $200/week
• A sales tax of 4.5% would be $9/wk
• Over 1 year, the sales tax on
groceries would total $468
• For a family with an income of
$100,000/yr. = .468% of income
• For the same family (same eating
habits) earning $50,000/yr., sales tax
on groceries = .936% of income
Proportional Sales Taxes Tax the
Wealthier, Less
The family with the
higher income
level spends a
lower percentage
on the sales tax
related to these
items.
But Proportional Sales Taxes Tax
The Less Wealthy, More
The family with the
lower income
level spends a
higher
percentage on
the sales tax
related to these
items.
Regressive Taxes
 A regressive tax  Social security
taxation system
requires those with
 At the beginning income
higher incomes pay
levels all individuals pay
lower percentages of
7.65% of their income in
their income.
FICA tax
 FICA taxes are not collected
after one’s income reaches
$68,400
Regressive Taxes, cont.
 FICA* is a
regressive tax.
 An individual earning
$68,400 would pay
$5,232.60 each year in
FICA taxes.
 An individual earning twice
that rate, or $136,800,
would pay the same FICA
tax amount or 3.825% -
1/2 the % of income
that the $68,400
earner would pay!!
*FICA - Federal Insurance Contributions Act
Progressive Taxes
 Progressive taxes
are those that increase
as a percentage along
with income
 Federal income taxes
are designed to be
progressive
Tax Brackets – 2014 Taxable Income
Examples of the 3 Tax Classifications
Individual
Income
Taxes Paid
Taxes as a
% of Income
Proportional Taxes
1
2
3
$10,000
$50,000
$100,000
$1,000
$5,000
$10,000
10%
10%
10%
Regressive Taxes
1
2
3
$10,000
$50,000
$100,000
$500
$2,000
$3,000
5%
4%
3%
Progressive Taxes
1
2
3
$10,000
$50,000
$100,000
$300
$2,000
$5,000
3%
4%
5%
Illustration: Proportional, Regressive, & Progressive Taxes
“Good” taxes
are are generally considered to be
progressive
while
“Bad” taxes
are considered to be
regressive.