“What We Tax—and Who Really Feels It” (part 5)

There’s an old debate in economics that’s easy to ignore until you’re the one footing the bill: Should we tax income or consumption? It sounds technical, but it’s really just about who carries the weight and how that weight is distributed.

With tariffs back in the headlines, we’re living through a real-time case study in how consumption taxes affect people differently than income taxes do. Because that’s exactly what a tariff is: a tax on consumption. You don’t feel it when you earn your paycheck—you feel it when you spend it. And some people feel that harder than others.

Here’s the core issue: wealthy people don’t spend most of what they earn. In fact, the wealthier someone is, the smaller the percentage of their income they actually use on day-to-day goods. Their savings, investments, and assets aren’t touched by a consumption tax. So when prices rise on imported products because of tariffs, it’s inconvenient—but rarely disruptive. The cost increase might not even register.

But that’s not true for everyone.

If you’re someone living paycheck to paycheck, you spend most (if not all) of what you earn—often on essential goods like food, clothing, and basic household supplies. Many of those goods are affected by tariffs, and that means a consumption tax doesn’t just skim a little extra off the top. It hits directly in the middle of your budget. You feel it immediately, because you’re already budgeting every dollar.

That’s what makes consumption-based taxes, like tariffs, regressive in practice. They may seem fair on paper—everyone pays the same amount at the checkout—but in reality, they take a bigger bite out of the people with the least to spare.

Compare that to income tax. Sure, it can be painful too—but at least it’s designed (at least theoretically) to scale with how much you make. It shows up when you earn, not when you’re just trying to buy what you need to live. And that distinction matters. Because while income can fluctuate, expenses rarely do. You still need food. You still need shoes. You still need gas. A consumption tax doesn’t ask how much you made—it just adds to the bill.

None of this is meant to say one tax system is universally right or wrong. They’re tools, like I’ve said before. But if we’re going to use them, we should be honest about how they land. Not every kind of tax is felt equally—and not every kind of tax gives people a fair shot at keeping up.

When we tax consumption, we’re asking the poor to pay a higher portion of their earnings just to live the same way they did last month. That might not be what the policy intended—but that’s where it hits. And if we don’t acknowledge that, we’re not really paying attention.