Final answer:
Stealth taxes are not specifically directed at lower-income taxpayers, but certain tax policies can disproportionately affect them. Social security tax is regressive as it caps taxable income, burdening lower earners more. Excise taxes also tend to be regressive, impacting lower earners to a greater extent due to the proportion of their income spent on these taxed goods.
Step-by-step explanation:
Stealth taxes refer to taxes that are not immediately apparent or are disguised as something else. A common misconception is that they are specifically directed at lower-income taxpayers; however, it's more accurate to say that certain tax policies can have a disproportionate impact on various income groups. When discussing individual income taxes, it's vital to understand the progressive and regressive nature of different tax systems.
For example, the social security tax is considered regressive because it has a cap on taxable income, which means that income above a certain threshold (e.g., $113,000) is not subject to the social security tax. As a result, as a percentage of total income, lower-income earners are hit harder by this tax compared to wealthier individuals who effectively pay a lower rate on their total income.
Another relevant example is the Revenue Act of 1942, which lowered the minimum income requirement to pay federal taxes, thus changing the nature of taxation in the United States and broadening the taxpayer base. Some tax credits, like the earned income tax credit, aim to incentivize work by providing benefits to lower-income earners, but they may also create disincentives for work as the credit is phased out with higher earnings. Additionally, excise taxes on goods such as gasoline or tobacco can be regressive, as they constitute a higher proportion of expenditure for lower-income consumers compared to higher-income consumers.
Therefore, while the notion of 'stealth taxes' suggests a targeted approach to taxing lower-income taxpayers, it more generally refers to the structure of certain taxes that can lead to a larger burden on lower-income earners, either due to caps on taxable income, the nature of consumption taxes, or the design of tax credits and deductions that change with income levels.