Overview Progressive Tax Regressive Tax
Hypothetical Sales Taxes on a Flat Screen TV

Property and sales tax rates are generally the same for everybody. The 2005 state sales tax rate in Texas was 6.25 percent for the state rate. But existing law also allows up to 2 percent more for county, city and other local sales taxes. Because these rates are uniform regardless of the payer's income, the tax for a particular good or piece of property represents a lower percentage of a wealthy person's income than of a less wealthy person's income.

The table below illustrates the differential impact of sales taxes for the purchase of a $2000 flat-panel television set on two people of different income levels.
Sales taxes and percentage of income paid on new flat-panel television set
Cost of new flat panel television set $2000.00
State and local sales tax rates (combined) 7.50%
Sales tax paid $150.00
Person 1: Sales tax paid as percentage of $10,000 annual income 1.50%
Person 2: Sales tax paid as percentage of $100,000 annual income 0.15%

The example shown here may not be realistic, as the numbers were chosen to demonstrate more easily the differential impact of sales taxes. We wouldn't expect a person who makes $10,000 to buy a $2000 television set. But, such a person probably does buy $2000 worth of taxable essential items over the course of the year.

People who prefer the sales tax as the basis for funding the state government are often quick to argue that such taxes are not regressive: the rich buy more things and they own more expensive houses, cars, boats, etc. Consequently, they end up paying much more in both sales and property taxes.

This is certainly true. Nevertheless, the wealthy get to enjoy all of those goods while paying the same tax rates as those who are much less wealthy. It is by this criterion that such flat rate taxes are by definition regressive.