Guest Post by Willis Eschenbach

A “progressive” tax is one where the wealthier you are the higher percentage of tax you pay. On the other hand, I’ve said before that a tax on energy, the so-called “carbon tax”, is one of the most regressive taxes available. It is the reverse of progressive, it hits the poor the hardest. This is because poor people spend a larger percentage of their income on energy than do rich people.

Someone challenged me on this claim about energy taxes the other day, and I realized I believed it without ever checking it … bad Willis, no cookies. So of course, having had that thought I had to take a look.

The Energy Information Agency (EIA) collects data on this, with the exception of gasoline usage. I got the most recent data, for 2009. (Excel workbook). Gasoline usage figures are here from the Bureau of Labor Statistics. Finally, income averages by tiers are available here from the Census Bureau.

Putting all those data sources together, here are the expenditures on energy as a percentage of the average income.

As always, data brings surprises. I didn’t expect the main expense to be heating (water and space heating) and the smallest to be gasoline.

In any case, it is quite clear that my original intuition was correct. The wealthiest of our households spend about 6% of their income on energy, while the poorest spend just over 40% of their income on energy.

And of course, this means if energy costs go up by say 25%, the rich will get a bite out of their income of 1.5%. But the poor will get an additional bill for no less than 10% of their income …

Sadly, in reality it is worse than that. At the poor end of the spectrum, there is very little slack in the budget. There is a concept in economics called “disposable income”, money that you have at the end of the month that isn’t already spoken for to pay some bill or other.

People living on the economic bottom floor not only don’t have disposable income, they never heard of disposable income. Every dollar is spoken for, and often over-promised.

So the poor get it from both ends. Not only does any price increase bite the poor harder than it does the wealthy, but the poor have much less available money to pay for any increase. That means the energy price increase has to come out of their kids food or the doctor bills or somewhere else important … bad news.

The rich pay a percent and a quarter, and the poor pay ten percent? This is the action that will save the planet in fifty years, to shaft the poor with an incredibly regressive tax?

I say again: fight CO2 if you wish, but fighting it by increasing the price of energy harms the poor more than anyone. Look at the graph above. Energy taxes are wildly regressive, and the worse off a family is, the harder any such “carbon tax” or any energy tax will hit them.

Best to all,

w.

PLEASE, if you comment QUOTE THE EXACT WORDS YOU ARE DISCUSSING, so we can all be clear about your subject.

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