Friday, August 15, 2008


An economist posted the following on the Bull City Rising blog. It is an excellent clarification of a term that is used loosely by lay folks:

I'm not taking a side on whether the prepared meal tax is a good idea or not. But as an economist who studies poverty and inequality, I was surprised to see the tax described as regressive.

A regressive tax is one in which lower-income people pay a higher proportion of their income towards the tax than do higher income people. According to the Consumer Expenditures Survey, households in the bottom quintile of the income distribution (who average $9,974 in income) spend 5.2% of their income on "food away from home" (the CEX category that approximates "prepared meals"). The next quintile (average income: $26k) spends 5.5%. The third quintile (average income: $45k) spends 5.8%, and the fourth quintile (average income $71k) spends 5.9%. For the highest-income 20% (average income $151k), the percent drops back down to 5.4%, but is still above the percent of income spent by the poorest group. You can see the numbers here:

So by the traditional definition, this is a--slightly--progressive tax. Of course, exempting the first $8 of the meal, as someone suggested, would certainly make it more progressive.

The other question I was curious about is, how progressive is this tax compared to the other main means of revenue-raising in Durham, the property tax? A look at the same table, on the line for "housing expenditures," reveals the following [note that economists believe that renters also pay property tax, because landlords raise rents proportionally when property taxes rise]:

Bottom quintile: 39.8%; second quintile: 36.3%; third quintile: 34.3%; fourth quintile: 33.1%; top quintile: 31.9%.

Since the share of income spent on housing falls dramatically with income, while the share spent on food away from home rises slightly, a prepared food tax is significantly more progressive than a property tax. (It's also much more progressive than an overall sales tax, which is highly regressive.)

None of this is to say that the proposed tax in this case is a good or bad idea--but it's not regressive, either absolutely or in comparison to other means at Durham's disposal for revenue-raising.

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