Definition
The term stealth tax is a generic reference to any tax levied by a government agency that raises revenues without angering taxpayers. Stealth taxes are oftentimes hidden in the purchase price of a product so consumers are not aware of the tax.
Explanation
The term stealth tax can refer to any tax collection mechanism that is not obvious to a consumer or taxpayer. Excise taxes are one example of a stealth tax since they're paid by retailers or producers of certain goods, and added to the selling price of the item. In the United States, there is an excise tax on each gallon of gasoline sold and that tax is "hidden" in the price per gallon displayed to consumers.
A stealth tax can also refer to a change in policy that results in additional taxes owed the government. Federal income tax deductions in the United States are often subject to phase-out limits. For example, personal exemptions and the deductibility of money placed in a Traditional IRA are phased out as income increases. In this example, eliminating a deduction effectively raises the amount of income taxes owed the federal government.
When a stealth tax takes the form of a sales or excise tax, it's also considered regressive since lower-income individuals will pay a higher proportion of their disposable income in taxes than higher-income individuals.
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