WHAT IS 'Tax Fairness'

Tax fairness describes a system of taxation that is equitable for all taxpayers. Groups focused on tax fairness look to limit the amount of tax legislation and rules that benefit one segment of the tax-paying population over another.

Generally, advocates of tax fairness believe that taxes should be based on a person or company’s ability to pay. This means that individuals and corporations with greater incomes pay a larger percentage of their income than low-income people or smaller businesses.

Advocates of tax fairness tend to advocate for closing loopholes in the tax code that allow certain individuals and corporations to avoid paying taxes.

BREAKING DOWN 'Tax Fairness'

Tax fairness may apply to all sections of the tax code, not simply to levels of income tax. For example, some advocates of tax fairness believe flat rates of sales tax to be unfair. This is because a flat rate of sales tax actually ends up having greater consequences for low-income people. A family living on $25,000 per year and a family living on $150,000 per year may both pay the flat 7 percent sales tax on goods and services in their state. However, the family living on $25,000 will have a significantly harder time making ends meet after paying a 7 percent sales tax. The family living on $150,000 will feel the cost of that tax less in terms of their ability to meet their basic needs.

Three Different Tax Systems

Groups that focus on tax fairness describe three different tax systems. These systems are regressive taxation, proportional taxation and progressive taxation.

Regressive taxation describes a tax system in which people with the lowest incomes pay a greater proportion of their income toward taxes. The general sales tax in the state of Florida is an example of this type of taxation. Low-income people end up paying a larger amount of their money toward taxes through this sales tax, partly because statistically, more of their income tends to go to taxable goods than those with greater wealth.

Proportional taxes require all taxpayers to pay roughly the same amount of taxes. This can also be known as a flat tax. Alabama’s state income tax operates almost as a proportional tax. In this state, most individuals pay almost the same percentage of income tax, though the poorest citizens pay a significantly lower tax rate than everyone else.

Progressive taxes allow poor people to pay the lowest amount of taxes, while tax rates go up with a person’s income level. Gerorgia’s state income tax operates in this way, with wealthier taxpayers paying a larger percentage of their income in taxes.

  1. Proportional Tax

    A proportional tax is an income tax system that requires the ...
  2. Progressive Tax

    A progressive tax is a tax that puts a lower rate on low-income ...
  3. Flat Tax

    A flat tax system which applies the same tax rate to every taxpayer ...
  4. Effective Tax Rate

    The effective tax rate is the average rate at which an individual ...
  5. Regressive Tax

    A regressive tax is a tax that is applied uniformly, resulting ...
  6. Tax Break

    A tax break is a savings on a taxpayer's liability. It is also ...
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