#170 Tax Policy and The Poor

#170 Tax Policy and the Poor | The Christian Economist

Six tax policies make the poor poorer.  At many levels, governments promote barriers to progress for the poor, whom we Christians care about. 


Writing in the WSJ this week, Andy Kessler opined, “There are only four things you can do with your money: spend it, pay taxes, invest it or give it away.”  My point today is, paying taxes is the worst thing you can do with it.  And, unfortunately, many tax policies make the poor, poorer.


Taxing Corporations

An article in The Epoch Times, titled, “White House Committing to Raising Taxes in Biden’s Forthcoming Budget,” quotes Press Secretary, Jean-Pierre saying President Biden would propose “Tax reforms to ensure the wealthy and large corporations pay their fair share while cutting wasteful spending on special interests like Big Oil and Big Pharma.”  OK, let me pick the low fruit first: When the government takes YOUR hard-earned money via force and spends it on some foolish climate control boondoggle, they call it “investment.”  But when tax breaks are given to oil companies, they call it “spending.”  Get that: According to the President’s press secretary, NOT paying taxes is SPENDING for the federal government.  Why?  Because, she assumes the government owns all the money, and just allows individuals and corporations to keep some of it.  That’s the only way you could consider a tax break, as “spending.”

But, my main point today: When you tax “large corporations,” that raises the prices they charge for the goods and services they supply.  So, when they tax that large corporation called Wal-Mart, prices go up for the poor.  Same thing for Dollar General and Kroger grocery stores.  Taxes are not paid by corporations: The increase in costs gets passed through to the consumer.  And, it’s a regressive tax, because poorer consumers spend a higher percentage of their income on the taxed goods. 


Property Taxes

You might think that property taxes apply only to relatively wealthy people who own large homes.  But, everyone has to live somewhere, and when property taxes go up, those increases are passed on to consumers who rent houses and apartments.  Even those living in section 8 housing that is funded by the government, will incur increases in rental costs, because the taxes are passed through to the consumer.

The average tax on single-family homes in the United States increased 3 percent last year, to $3,901.  That means poor families are taxed about $300 a month, whether they own or rent. 


Tax Bracket Creep

In podcast #101 titled Inflating Inflation, I’ve pointed out that inflation is here to stay.  In my quarterly forecast for the Christian Economic Forum, I wrote about inflation being “sticky,” that’s the word economists use when they explain that it can’t be reduced as quickly and as easily as the Treasury and Federal Reserve folks think it can. 

Labor gets a raise, which causes an increase in the price of the products and services they produce, then consumers need a raise to cover the cost of goods, and the spiral continues.  It’s sticky, and it sticks to poor folks, who make more money, but can’t buy more goods with it.  But, the increase in their wages pushes them into higher tax brackets where they pay a higher percentage of their income in taxes.

Adding 87,000 IRS agents to the investigative squad will increase taxes at all levels, not just the rich.  In podcast #140 titled The IRS Targets the Proletariat, I point out that, after attacking the rich, they will go after the poor.  There just are not enough rich people to go after.



Tariffs are regressive.  Poor people spend a higher percentage of their income on tariffed goods, than do the rich.  And the tariff rate is the same for rich and poor.

A little history first.  There were some income taxes, during the Civil War, but what we now know as a schedule of regular income taxes, began with the passage of the 16th amendment in 1909.  Before that, the government was essentially funded via tariffs.  William McKinley won the presidency in 1896 and 1900 on a platform that encouraged tariffs.

Import restraints on food and clothing are regressive in nature.  A greater share of income from low-income households goes to food and clothing than from higher-income households.

Again, politicians may claim they are protecting domestic producers, or only taxing large corporations, but tariffs get passed on to the poor consumers who buy the products that are tariffed. 


Soda Taxes 

In 2014, voters in Berkeley, California, approved a tax on sugar-sweetened beverages, which has become known as the soda tax.  It’s based on the economic idea that, when you raise taxes on an item, less of it gets consumed.  These are often called “sin taxes” and they are levied against alcohol and tobacco products.  But the soda tax was allegedly intended to reduce obesity, by intentionally driving up the prices of sugar-sweetened beverages. While the taxes are on distributors and not at the point of sale, these taxes, if they are to reduce consumption, would need to be passed on to consumers.  The taxes don’t recognize the difference in rich and poor, and so again, the poor pay a higher percentage of their income on these goods.


The Lottery

Here’s an exercise I’ve explained in class at Dallas Baptist University.  Picture a roulette wheel.  There are 18 red categories, 18 black and two green.   The casino collects money as though there are 38, but pays as though there were 36.  Thus, the casino has a two-thirty eights advantage.  To make the math simple, let’s round that up to 2/40th.  So the house has about a Five percent advantage.  So, gamblers put money on the numbers, and they spin the wheel.  The house pays back 95% and keeps 5%.  Wanna play again?  The house pays back 95% and keeps 5%.  Slot machines are in the same range, they pay back somewhere between 82 to 98% of revenue, depending on how they’re set by the operators.   

I’m trying to keep out of the statistical weeds here, so let’s assume the casino keeps about 5% on all its games.  How much do state lotteries keep?  If you play the lottery you should know.  And, by the way, there’s a reason they call it “Playing” the lottery.  Most of my students are astounded to find that forty-four states sponsor lotteries, with an average payout of only 62 cents per dollar of revenue.  They keep the other 38%.  That’s about seven times more than the casino keeps.  In Texas, the state keeps HALF.

I have often been behind a lottery ticket buyer at a convenience or grocery store.  I want to say to the fool in front of me, “You know when you give that clerk $10, she’s going to give you $5 back?”  Which, if the two players are the State of Texas and all the Texans playing the lottery, is factually true.  As a group of Texans playing the lottery, you get half your money back.  I want to suggest to the player in front of me, “Meet me in the parking lot and I’ll give you $7 back for your $10.  No, I’m feeling generous today, I’ll give you $8.”  Matter of fact, call my cellphone anytime and I’ll meet you in the parking lot with the $8 offer.” 

Yikes: You mean individuals have a ten times better chance of winning in a casino, than in the Texas lottery?!  Yep.  That’s why only states can do it.  For-profit casinos are denied those kinds of odds by law.

Low-income individuals are more likely to play the lottery, yet are less likely to benefit from its proceeds. In a 2011 literature review, Kent Grote and Victor Matheson of the College of the Holy Cross note that researchers have found that those with low levels of education (among other groups) are more likely to purchase lottery tickets, and studies uniformly find that lotteries represent a highly regressive form of taxation, yet wealthy individuals and regions tend to benefit disproportionally from money earmarked towards cultural programs and education, potentially exacerbating the regressivity of the revenue side of lotteries.

The “American dream” is something to which all can aspire. While it is not the government’s role to guarantee success to any Americans, the government should certainly not implement policies that make it more difficult to make this dream a reality. Yet, too often, that is precisely what the government does.

This nation is filled with success stories of people escaping poverty, but those stories seem to be getting fewer as government has grown. As I’ve pointed out in this podcast, in many cases, governments promote barriers to progress. Just getting government out of the way could make a huge difference. All levels of government—local, state, and federal—need to look honestly at how they contribute to the poverty problem. Then, they can become part of the solution.




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