I always find it difficult to communicate to people why regressive taxation is bad policy.
The first time I came across the phrase ‘regressive tax’ was as part of a 7th form economics mid year exam, where I actually got the definition wrong as an answer to an exam question. I only came to understand the concept after I went back and reviewed my mistake. Even to this day I struggle with articulating it.
The proponents of regressive taxation tend to get away with murder because the concept is in the first place so hard to understand.
Phil Twyford’s recent claims in the media only serve to muddy the waters. While it may be true to say that the ‘total’ amount of tax paid on fuel by high income folks is higher, based on the assumption that they drive more, it certainly doesn’t reflect the fact that low income folks will end up spending a higher percentage of their income on fuel taxes.
I created this calculator to help demonstrate the concept. The important thing is to pay attention not to the amount that a person pays, but the amount that a person pays relative to their take home income.
Hopefully you can see that a person who takes home $500 per week pays a higher percentage of their income in fuel taxes than a person who takes home $1000 per week, even if they sometimes spend less money on fuel overall.
This is why fuel taxes are considered to be ‘regressive’.
