Sales tax is regressive because it takes a larger percentage of income from people who earn less
A regressive tax is one where the tax rate, in effect, goes down as your income goes up. Sales tax is regressive because everyone pays the same percentage—usually between 4 and 10 percent depending on your state—but that percentage represents a much larger share of a poor person's income than a rich person's.
Here's the concrete difference: A family earning $30,000 a year spends most of that money on taxable goods like groceries, clothing, and gas. A family earning $300,000 a year spends a smaller fraction of their income on those same goods—they save more, invest more, and buy services that often aren't taxed. So the $30,000 family pays sales tax on a much larger percentage of what they earn, even though the tax rate itself is identical.
Key Takeaways
- Sales tax takes the same percentage from everyone, but that percentage represents a much larger share of income for lower earners because they spend more of what they make on taxable goods.
- A person earning $25,000 might spend $20,000 on taxable purchases, while someone earning $250,000 might spend $50,000—meaning the lower earner pays tax on a much higher percentage of their income.
- States with higher sales tax rates and no income tax (like Tennessee and Texas) are more regressive than states with income tax, because lower earners have no way to offset the burden.
- Some states reduce regressivity by exempting groceries and prescription drugs from sales tax, which helps lower-income households that spend a larger share of income on necessities.
How the math shows regressivity
The clearest way to see regressivity is to look at what percentage of total income goes to sales tax. Suppose your state has a 7 percent sales tax.
A single parent earning $28,000 a year might spend $24,000 on taxable goods—rent, food, utilities, clothing, transportation. That's 86 percent of their income. At 7 percent sales tax, they pay $1,680 in sales tax, which is 6 percent of their total income.
A lawyer earning $280,000 a year might spend $60,000 on taxable goods—the same rent, food, utilities, and clothing, plus some discretionary purchases. That's 21 percent of their income. At 7 percent sales tax, they pay $4,200 in sales tax, which is 1.5 percent of their total income. Both pay the same tax rate, but the lower earner's burden is four times heavier as a share of what they make.
Why savings and investment make the difference
The core reason sales tax is regressive comes down to what happens to money after you earn it. Lower-income households spend nearly all of what they earn on living expenses. Middle and higher-income households spend a fraction of what they earn and save or invest the rest.
Sales tax only applies to purchases, not to savings or investments. So when a high earner puts $100,000 into a retirement account or buys stocks, that money never touches a sales tax. When a low earner spends their last $500 on groceries, every dollar of it is subject to tax. Over a lifetime, this compounds: the wealthy accumulate untaxed assets while lower earners pay tax on nearly everything they touch.
Which states are most regressive
States vary widely in how regressive their tax systems are. States with no income tax and high sales tax rates—Tennessee (9.55 percent), Louisiana (8.89 percent), and Arkansas (8.65 percent)—place the heaviest burden on lower earners because there's no income tax to offset it.
States that exempt groceries and prescription drugs from sales tax reduce regressivity somewhat, because lower-income households spend a much larger share of income on food and medicine. California, Texas, and Florida all exempt groceries. States that exempt neither—like Mississippi and South Dakota—are more regressive because necessities are taxed at the same rate as luxury goods.
A few states have tried to address regressivity by offering earned income tax credits or property tax rebates to lower-income households, which partially offsets the sales tax burden. But these programs vary widely in generosity and reach.
How sales tax compares to income tax
Income tax is generally progressive—the tax rate increases as income increases. Federal income tax has brackets: you pay 10 percent on the first $11,000 of income, 12 percent on the next chunk, and so on up to 37 percent on the highest bracket. This means a higher earner pays a larger percentage of their total income in tax.
Sales tax is the opposite. It's a flat rate that hits everyone equally, which means it takes proportionally more from those with less. This is why economists often describe a tax system's fairness by looking at the mix: states that rely heavily on sales tax and little on income tax tend to be more regressive overall, while states with progressive income tax and lower sales tax tend to be less regressive.
The debate over regressivity
Some argue that regressivity is a reason to lower sales tax rates or exempt more goods. Others point out that sales tax is easier to collect than income tax and doesn't penalize work or savings the way income tax does. Still others say the real issue isn't the tax itself but whether the revenue it raises is spent on programs that help lower-income people—schools, roads, public health—which could offset the burden.
The regressivity question also depends on what you're comparing it to. Sales tax is more regressive than income tax, but it's less regressive than a flat tax on all income. And it's less regressive in states that exempt necessities than in states that don't. There's no single "fair" tax rate, only tradeoffs between different kinds of fairness and different ways of funding government.
Frequently Asked Questions
Does sales tax affect rich people differently than poor people?
Yes. A rich person and a poor person both pay the same 7 percent sales tax on a $100 purchase—$7 each. But that $7 represents a much larger share of the poor person's weekly income. Over a year, the poor person pays a much higher percentage of their total income in sales tax because they spend a larger share of what they earn on taxable goods.
Why don't states just raise income tax and lower sales tax?
Some do. But income tax is harder to collect, requires more record-keeping, and some people view it as penalizing work. Sales tax is simpler to administer and harder to avoid. States also disagree on what's fair: some prefer to tax consumption, others prefer to tax income. Political pressure from high earners also plays a role.
If groceries are exempt from sales tax, does that fix the regressivity problem?
It helps, but doesn't solve it completely. Groceries are a large share of lower-income budgets, so exempting them reduces the burden. But lower earners still pay sales tax on rent, utilities, clothing, transportation, and other necessities that can't be exempted. The regressivity shrinks but doesn't disappear.
Is sales tax the most regressive tax?
Sales tax is regressive, but a flat tax on all income would be more regressive. Property tax can also be regressive in some cases. The most regressive taxes are those that take the same amount or percentage from everyone regardless of income—which is why progressive income tax is often seen as fairer.
Do other countries use sales tax?
Most developed countries use a value-added tax (VAT), which works similarly to sales tax but is collected at each stage of production rather than at the point of sale. VAT rates in Europe range from 15 to 27 percent, and most countries exempt groceries and medicines to reduce regressivity. The same principle applies: it's regressive unless necessities are exempted.