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.
It’s all “progress” or monotonic change. Principles matter.
“This is because poor people spend a larger percentage of their income on energy than do rich people.”
More statistical BS from Willis. Willis is the California hippie representative to the social justice legue. Power to the people by the clueless and inept. California is a place where the mild climate makes life easy resulting in a generally clueless population.
In America, we do not let low income people go without heat and lights. The government picks up the tab by taxing my family income. I am glad to help the needy.
When moderate income people pay their own energy bills, they are less likely to waste energy. The funny sad thing here is that my energy bills were much less than state and federal income tax, and property tax.
The next thing wrong bonehead Willis statistics is 2009 had much higher gas and oil prices than today. Why would the EIA not do a new study? It is just a guess, but follow the money.
There is the lot of pork in the energy assistance program. While I do not minding helping some old person, much of the program is funneling money from me to people who voted for Obama.
Willis is guilty of confirmational bias.
hilarious stuff there……the author is CORRECT and you are playing politics.
Willis is right, but there is a broader message in consumption taxes than this. Mississippi was the first state to institute a state sales tax back in the 1940s when the government needed more money to support government programs and delivery. It was copied by most states and the breadth of it spanned all goods and some services. The local franchise taxes pile onto this even more and include some services like phone service and waste pickup. That means the poor pay sales tax on clean water, electricity, food, and other basics. Eating out (even fast food) and using a phone are taxed at luxury good rates. Those states that don’t have a sales tax rely on some other distorted rate or source to spend as much or more than Mississippi. This is a big topic and I could go on for days.
this layman has been saying for years the working POOR pay a much HIGHER %of their income on taxes and just basic living than even the middle class.
While watching the activities in DC, I had an interesting conversation with my son. He brought up the topic of Detroit intercity schools and fracking. He starts his first job as an engineer inside the beltway at one of those government agencies many of us would like to see cut back. He went college just outside the beltway where diversity is valued.
Kind of my worst case nightmare.
I do understand. When I was a new engineer before being trained to be a skeptic, I voted for Jimmy Carter. My son has no first has knowledge of inner city schools or producing anything while protecting the environment.
I went to inner city schools in Ft. Wayne Indiana, a auto industry city like Detroit. I know first hand about race riot and pollution. I worked a summer in an auto industry factory. Before retiring I also volunteered at an inner city schools.
Here is why Willis is wrong. In the US (and I suspect most of the world), the same calculus is taught at MIT as the community college. There is no regressive tax on opportunity.
To quote my mother, “poverty is a state of mind, you can not be poor if you live in a town with a good library.”
I am skeptical that inside the DC beltway such a idea would be popular. They are the government charged with taking care of us. I am waiting to see if the Trump gets heard and if my son hears it.
It’s a moot point, that “carbon” taxes are regressive. So are a lot of things. The bottom line is that they are extremely bad for the economy, deadly in fact. And a bad economy most definitely bodes ill for everyone, especially the poor, not to mention the environment.
When the percentage of taxes paid are tied to the amount of wealth one has or has earned, I’ve always liked this comparison.
(It came out in response to the objections to the GW Bush tax cuts but it communicates.)
great explanation, also the founders of this nation considered taking away the fruits of ones labor(INCOME in modern terms) was something that should never be done by government…..voluntary use of that money/fruits that is taxed is much different than just directly taking money as the income tax does.
A little followup.
The same percentage for all (no exceptions, no exemptions) would still have the “rich” paying more, just no more free rides.
Maybe when the tax laws take money from everybody’s pockets (including corporations, foreign and domestic) equally rather than putting it into some’s, the voter’s might pay more attention to what’s going on in politics?
(The end of “Those who promise to rob Peter to pay Paul can always depend on the support of Paul.”?)
This is trickle up economics. Take a few dollars from the poor and give it to the rich. It adds up
Willis you are correct as far as you go, but don’t forget that the added cost to the wealthy who also include those who make goods that the wealthier make for all, including the poor, get to deduct the energy cost from income and add to the price charged that isn’t covered by the deduction thereby further increasing the load on those who do not have rhe. income to deduct any costs from. The price of food that they buy for example is increased by such added costs to the producer not ameliorate by the tax deduction. Have I stated this clearly?
Your mistake is assuming that those who make things are also the rich.
Most factories are owned by companies that are incorporated, as such they are owned by their shareholders. The vast majority of share holders in this country are not the rich, but the middle class. (When you factor in pension funds and 401Ks.)
The rich do not get to deduct their energy expenses, any more than the poor or middle class do. Businesses on the other hand, do get to deduct all business expenses, including energy costs.
Bjorn Lomborg provides a good analysis of how it is a worthless effort anyway, and an incredibly expensive one at that. https://www.youtube.com/watch?v=47bNzLj5E_Q
Tax to protect against climate change should give anyone the right to demand proof beyond question. We are being fined for committing a crime when there is no proof that it was not just poor accounting and the money was not missing in the first place.
In the case of temperature unless proven otherwise to an independent review body we should be assuming the rises were natural and only poor analysis failed to show the pattern was not a simple linear one which is nearly unheard of in nature.
When we have daily night day and annual summer winter why should we just accept the lack of similar ones related to supermoons and Mars orbits that are weaker and longer term on the say so of a self appointed unsupervised clique who as good as tell us we are too ignorant plebs and must just accept their word? I use self appointed as they set the tests that allow use of the label climate scientists and that test excludes anywhere near adequate competence testing in practical assessment of data and its collection.
You have to remember that part of the left’s plan is to create a crisis that they can fix by taking from the haves and give to the have nots. In other words, there would be short term pain, but eventually the poor’s energy use would be subsidized while the rest of us continue to pay for ours and theirs.
Taking from the haves to give to the have nots is what they claim to be doing.
But for the most part, they take from the workers and give to themselves.
What is regressive for humanity is progressive for the planet.
I think that the person writing this comment has no clue, and I mean this in a nice way. Really, this person has no realistic grasp of what he/she is talking about. I certainly would like to see the supporting data behind this sweeping claim, if I am wrong.
Are there people misusing government assistance ? — Sure, and that’s another issue. But here, in regard to the cost of energy, a very overgeneralized picture is completely distorting the greater reality. Especially in regard to energy assistance programs to help with household heating costs, this person has zero clue what the requirements are, what the limitations are, and how quick the money runs out (a first-come, first-serve situation, as I understand it, until the allotted money runs out).
Robert Kernodle,
I think that the person writing this comment has no clue, and I mean this in a nice way. Really, this person has no realistic grasp of what he/she is talking about. I certainly would like to see the supporting data behind this sweeping claim, if I am wrong.
You are 100 % correct. I am one of those people.
Less than 40 thousand, I pay tax every year. NO Assistance of any sort!
( keep on working because the people on welfare depend upon it )
I owe no one, anything. Except my Mortgage.
Yet, I can NOT insulate my home, or do anything to bring any electrical bill down.
Yet, not once in the last decade has income risen.
Yet, since our health insurance was deleted by the ACA, we were forced on to it. What to do? well, pay a fine for nothing or pay a mandated price for nothing. Great choice eh?
I just paid 1500.00 for 2 pair of glasses, no choice.
And so many comments I would be able to counter comment with, well, there’s just to many.
The people that showed in Washington to protest President TRump, don’t have those worries.
I could never afford to go to D.C., my income doesn’t allow that, or let alone a week of for any vacation.
I haven’t had a vacation in 30 years of marriage. Not on the priority list. We’re to busy supporting welfare and elites.
Great Article BTW Mr. Willis Eschenbach
From an income tax administration point of view, it is you who “has no clue”. I mean that in a nice way too.
I mean this in a nice way,
You obviously have everything you want, not equated with what you need.
Like i had stated, i just spent 15 hundred, 1,500.00 dollars on two pair of needed glasses.
? Chipped in by the ACA = 00.00 ( zero )
So Mr. Resourceguy, Sure wish i could’ve used that to insulate my home, UHMMM?? insulation or eye glasses ? I’m just not sure that i made the right choice, I must be deplorably uneducated.
Okay, then show me, “from an income tax administration point of view”, the data from which you derive your claim. Otherwise, you are just posturing with generalizations that are empty.
Using data from … https://www.acf.hhs.gov/ocs/resource/liheap-annual-report-statistics … , we see that the latest Low Income Home Energy Assistance Program (LIHEAP) Annual Report Statistics show that about 6,000,000 USA households were assisted with heating costs [for the two years of data collected].
Now using Table 1 from the USA Census website, … http://www.census.gov/data/tables/2016/demo/income-poverty/p60-256.html … we can determine that 109,202,000 USA households made $ 38,000 or less in income.
So, putting this together, … 109,202,000 – 6,000,000 = 103,202,000 USA households making $ 38,000 or less, and these 103,202,000 households making $ 38,000 or less most assuredly DO have to pay something to heat their homes, or go without heat.
In other words, according to the above data, … 5% of households making $38,000 or less DO receive government energy assistance, while 95% of households making $38,000 or less do NOT receive government energy assistance.
Here’s some relevant income information from the USA Social Security Department:
https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2015
61.55766 % of USA wage earners make $ 40,000 or less per year.
HALF of USA wage earners make LESS THAN $ 30,000 per year.
And here is an eye-opening article, based on data from that web page:
http://www.washingtonsblog.com/2015/10/goodbye-middle-class-51-percent-of-all-american-workers-make-less-than-30000-dollars-a-year.html
So, I stand firmly by my claim that the person making the remark about the $ 40,000 income was clueless, and the other person making the claim that it was I who am clueless is doubly clueless.
This is one of those idiotic myths that help rich people feel good about themselves. First, everyone pays taxes other than income taxes. For most of us, payroll taxes is the biggest chunk of our paycheck. Plus, we also pay gas taxes and other fees (ex. on telecommunications.) Second, wealthy people pay more because they benefit more from the system which creates their wealth.
I don’t know where $40K falls in the income spectrum, but I do know that the bottom 50% of income earners only pay around 1 to 3 percent of all income taxes paid.
As to receiving charity, everyone on Social Security and medicaid/medicare is receiving charity, even if their pride won’t let them admit it to themselves.
MarkW,
How can Social Security be a charity for those who paid into it all their working lives?
I want my money back.
Payroll taxes are 35% of the Federal revenue. Whether you call it a “charity” or a “tax” is immaterial. It is an important part of our economy to prevent the wretched conditions of the Great Depression. As a regressive tax, payroll taxes are an enormous drag on our economy and it rewards companies for shifting jobs overseas.
That’s why the tax structure has to change.
Let them burn cake.
I suspect that many of the poor live in cities, where they use public transportation.
Thanks, Willis Eschenbach, for an enlightening post on
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.
My personal conclusion says –
Why not a ‘flat rate’ for
– energy consumption and
– water consumption
like we already have for
– internet connection and
– communication / cell phones.
Johann, a flat tax like that is regressive. 100 bucks per month hurt you a lot if you only earn 1000. A really flat tax would be like 1% of your income 😉
Carbon taxes makes perfect sense when you understand the end game. That being reducing the global population. Under the carbon taxation more of the poor will be unable to heat their home in the winter or cool it in the summer. A number of those poor will die thus helping to reduce the world population.
What’s really ironic here is that the largest chunk of low-income expenditures is to heat their homes during a time of global WARMING.
Tell somebody who has no hope of paying their winter heating bill that they need to pay a tax because the globe is warming catastrophically. I would love to be there. (^_^)
Willis, you are right on. It is worse than your chart shows. I know when gas prices were high, I would buy 50 cents to one dollar of gas to get home from work. I had a good job, but my mortgage payments were too high…couldn’t afford all the payments. I now live in Mexico where I can afford to live on social security only. ,,,JPP
@Douglas Goldman
“How do you define “small part”?”
The number 10% comes from a study I read sometime ago examining the myth of the good old days and why things are better today especially for the poor.
I was raised by adults who lived through the depression and WWII. Feeding a family on a budget and conserving energy was a necessity. Skill passed on to the kids. When I was working, I packed a lunch and ate at my desk.
“Under no circumstances would my family be considered poor and yet food and energy amounts to ~28% of my monthly budget.”
Douglas I have a problem with anecdotal experience. During the energy crisis of the 70s, I was on a fixed income in the navy and heated with oil. My heating bill doubled then doubled again. It hurt. We had good friends, also navy families, who had $1000 heating bills which were five times our bill. We had big old houses. The difference was sealing up the drafts. Old house do not have to be drafty.
When our ship went to the shipyard adding 80 miles a day, we car pooled.
Look around today. Starbucks has a drive through. You do not have to even turn off your engine to pay $4 for a cup of Joe.
Feed corn fuels pellet stoves. A small chicken coop will not only feed a family but you can sell eggs to neighbors. There is satisfaction in this. Even had a beehive until a bear got it.
Food and energy are cheap commodities. This allows people to make choices about how much they use. I can feed a crowd with a $100 in steak or a $5 pot of chilli. At company potlucks, I make green bean casserole using the recipe from the can of soup. It is always the first empty pan.
Two points, first it about the choices we make. Second, I do not want the government to make my choices.
@Retired Kit P January 23, 2017 at 9:52 pm
You state “I have a problem with anecdotal experience” and yet nearly everything in your post is anecdotal.
I consider eating out and starbucks (Yuck!) a luxury. i did not include any of that type spending in the 28% figure. When I pull out just my energy expenses, they appear to line up pretty well with the chart above.
Food is the bigger expense: Two ravenous teen boys and another growing quickly.
I suspect your “$100 in steak or a $5 pot of chili” will provide a small meat portion to that crowd – not the whole meal. Ditto for the green bean casserole. A single dish does not a meal make.
I have no doubt the poor are much better off today then yesterday. Really, we have very few people in the US who would be considered poor from a global perspective.
And you are right, it is about choices. You have chosen to live in a place where you can raise chickens.
I have chosen to live in a place with excellent schools and is close to work. My commute is 5 miles.
I think 10% is very unrealistic.
Take someone making $40K/yr with 5 mouths to feed.
10% gives $333/mo for food & elec / gas / oil. Forget about fuel for a car.
Oh, and I am completely in agreement with keeping government out of it.
@ironargonaut
“Mud4fun can they choose which apartment to rent?”
Sorry ironargonaut, I missed your reply due to my mobile not showing the replies properly, now back on PC but no reply button your comment. Apologies.
In answer to your question, yes they can choose the property they rent to some degree however in the UK (I assume the same in the US) the rented property in urban areas close to all the amenities and in the warmer UHI are more expensive. The more rural property where we live is much cheaper but is colder in the winter as it is outside of the UHI. So it is swings and roundabouts, the elderly can pay more for rental property in the towns and pay less heating costs but overall spend is roughly the same.
We are not close to a major city, the nearest urban areas are smaller market towns or larger industrial towns. We are also in a relatively poor part of the UK. There are no university or academic establishments locally which means the rental property tends to be 3 bed detached houses or larger 2 bedroom flats rather than small 1 bed flats (as you would see in areas catering for students). The rental property tends to be older styles of property, poorly insulated and with very inefficient heating systems. Thus people who can’t afford to buy a house (or rather can’t afford the deposit) often end up paying higher heating costs than those of us who are lucky enough to own our own homes where we can install whatever heating system suits us. At the bottom of the rental property ladder are the cheapest rents but often accompanied by pre-pay meters which are charged at a far higher rate than normal energy tariffs.
My elderly neighbour takes home about £500 a month in pension, I take home approx. 10x that amount after tax. The fact that my family of four in an off-grid solid fuelled period cottage were paying the same annual energy costs of £1200 as the elderly neighbour pretty much tallies with the chart at the top of this post. Our total energy bill is just 2% of our annual income whereas for our poor elderly neighbour it is 20%.
She could move to a retirement flat in a city some distance from here and pay far less on energy but she’d then face a doubling in her rent.
According to UK government forecasts*, 86% of UK households will be single people by 2033 (if we had zero net migration), approx 60% of those households will be age 65+ due to increasing life expectancy. So the energy costs that are already hurting the elderly will become significantly worse in future. This also places more demand for single person type property which pushes the prices of rental flats up even higher.
*https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/6395/1780763.pdf
oops, that should have been 68% of UK households will be single people not 86%! Temporary brain fade – I blame my age 😉
that should have been 68% of GROWTH in single person households of which 60% is aged 65+, having a bad day!
Fact remains, the population is getting older, more are living alone and paying more on energy as a % of their income than the relatively wealthy working generations. I can see us going back to a time when multiple generations lived under the same roof. Seems to me to be more efficient use of energy to heat one house with 10 people in it than to heat 10 separate houses?