The US has always, in modern times anyway, embraced a progressive version of the income tax. But lately-- and maybe this was just campaign rhetoric but I think not-- it’s not hard to find people angrily claiming that a progressive tax is fundamentally unfair. It’s Robin-Hood redistribution and morally abhorrent. And to illustrate their point they use welfare and disability cheats.
First, it’s awfully ironic to hear wealthy folks making moral arguments. Used to be they would claim some pragmatic supply-side economic argument, but I guess that doesn’t work anymore.
I’m an open-minded fellow so when somebody questions a fundamental belief, like a progressive income tax, I should be able to explain why it’s necessary. In a nutshell, the free market disproportionately benefits those with the most wealth. Income inequity can’t grow indefinitely before something blows up. It is in everyone’s best interest to keep the economy in equilibrium, and to do that requires counteracting that gravitational pull with some other force. The only tool I know for that job is a progressive income tax structure.
Pitchforks and torches might also do the trick, but not very efficiently. They only kick in once the economy is already exploded.
Any other perspectives?
Seems weird to even debate this issue but I keep running into flat-taxers (“Everybody pays 30%” or whatever) and can’t seem to get past their moral-hazard argument for helping the undeserving few. I don’t think they like charts or economic theory.
Look up marginal utility. If your tax policy should be structured to cause every person more or less equal pain, the rich should pay relatively more since every marginal dollar is worth less the more you have. A thousand dollars might be the difference between paying the rent for a month and not for a poor person. For me it is nice to have, but not a very big deal. For Bill Gates it is in the noise. If you have kids, consider the value of a dollar to you versus them.
Your reasons make sense also, this is just an extra.
You can justify it by looking at who is helped the most by the government. By that measure, the ones that should pay the highest taxes are the upper-middle class and lower-rich class, and they already do pay the higest. The government is dedicated to preserving their wealth. Without the government, the so-called “free market” would quickly devolve into naked shows of aggression. The poor already have nothing (and a select few would benefit from revolution), and the ultra-rich are connected enough to be able to protect their wealth even without the government.
Now, while I think the ultra-riches taxes should be raised, it’s because they can afford it and America is going broke. Those who actually benefit the most from taxes are the upper-middle and lower-rich classes.
It’s to make taxes equally painful. Consider there are two people in America.
Joe Smith makes 1,000 a month. Rent costs him $500. Food costs him $200. His car (necessary for his job) costs him $100.
If he is taxed at 20% he breaks even every month.
Joel Smythe IV makes $100,000 a month. His rent costs him $5,000. Food costs him $2,000. His car costs him $1,000. If he is taxed at 20% he has an extra $72,000.
One is taxed to the point of bankruptcy. The other is taxed such that he doesn’t feel it much at all.
There is the two sided practical aspect. Someone earning at the poverty level pretty much needs everything they earn to survive, while someone earning a million a year can afford to pay the taxes. There is also the fact that rich people have the money. The top 10% of earners by almost 80% of personal income taxes. And that is not just because they have higher rates. The top 20%. The paid about 5 times as much in taxes as the next lower 20%, but their effective rate was less than twice as high.
Also, our personal income taxes are not as out of control as some make them out to be. The effective tax rate for 2009 of the top 1% of earners is only 22.3%. Total federal effective tax rate was only 31.6%. Cite
Voyager covered the best reason, but another reason is that the rich tend to get a much larger chunk of their wealth from things other than payroll income, which aren’t taxed as much, and they pay fewer consumption taxes as a fraction of their income and wealth, like sales and gasoline taxes for example. With our current structure, when you average everything out, and figure out how much people pay in tax through all of their various methods of income and tax, it’s remarkably flat, with everyone paying around 19.5%. If the tax system weren’t progressive, the rich would be paying less as a fraction of their income.
Really, everything after this is icing. Once you understand marginal utility, you understand why the tax system (not just income taxes; the whole system) should be progressive.
The problem is with the line of thinking. Of course it’s not fair. It isn’t fair, but no one said it is.
And this is where the problem comes in. You can’t argue the progressive tax is fair, because it’s not.
But what IS fair is not what IS best.
Here’s an oversimplified example.
Mr Coyote has a dollar. Mr Road Runner has $99.00
I give Mr Coyote 99 more dollars and I give Mr Road Runner one more dollar.
Now they are both equal at $100.00
But Mr Coyote is MUCH better off than he was a minute ago. Mr Road Runner is really no better off than he was a minute ago.
You see the argument is that people who CAN pay more SHOULD pay. That you can argue. You can’t aruge that it’s fair, 'cause it’s not.
The thing is no man is an island, we are living in a society, and we must contribute to our society as well as our self. In Illinois seniors ride public transit for free. Is that fair? No, they take up the same seats but we know as a group (not individuals but as a group) seniors need a little help, so we give it to them.
We get things back as now instead of staying in their houses, seniors can go out and LIVE in the society and give back their learning to the younger generations. We changed a tangible for an intangible.
So the benefit is there it’s just not obvious and easy to measure.
No, he’s talking about how much people take in going back out as taxes. These discussions almost always focus on payroll/income tax as if it were the only tax, and therefore, the rich are getting taxed more than everyone else.
There are lots of types of taxes, and the richer you are, the less of your income tends to go to these taxes without some sort of progressive system.
We do arguably have a flat tax structure, which is why we need the progressive income tax.
Some taxes fall disproportionally on the wealthy. The federal income tax, capital gains tax, dividend tax, estate tax.
But some taxes are regressive relative to income. property taxes, sales taxes, sin taxes, fuel taxes, social security taxes.
A person making 30k a year will pay 6.2% of his income in SS taxes. Someone making 400k will pay 1.5%. The person making 30k will also pay a larger % of their income in fuel taxes, sales taxes, property taxes, etc.
So you need a progressive income tax just so the total tax burden is equalized and the regressive taxes are equaled out by progressive taxes.
In a way the progressive income tax is ‘unfair’ to the wealthy. The wealthy don’t use public schools, they send their kids to private school. And even though they pay the same % in medicare taxes, they get the same medicare. Also they don’t need social safety net programs like medicaid. So a wealthy person can pay tons in taxes and not use most of the services he/she pays for.
But they have more money, and as Voyager says it is about utility of income. A thousand means less when you make 500k a year than when you make 20k.
And for social stability. Creating a situation where much or most of the population is impoverished, hopeless and desperate and in general receives no benefit from the system is the sort of scenario that sparks kill-the-rich style terrorism and revolutions.
It’s not that simple. Taking money away from people in unequal amounts is only obviously unfair when you don’t consider where that money came from and how it was generated. Was the wealth generated fairly? No, because it is a fact that wealth as a starting point enables the ability to generate more wealth. In other words, as the OP pointed out, the fact that historically income inequality grows (unless bounded by progressive wealth redistribution) is evidence for the fact the wealth generation is complicated and itself not fair. While not an easy ‘equation’ to solve, it is conceivable that progressive tax is in fact fair, if the compound-nature of wealth generation is taken into account. The only difficulty is in ascertaining how progressive to be in order to approximate fairness.
While I do well enough financially I am not wealthy by any definition in the US.
Personally though I believe in a social contract. We live in a society and it does benefit me, even if indirectly, to have schools and a well educated populace and roads and social safety nets and such.
As to the rest of your post I think it is spot on and one that is missed all too often in all this.
When all taxes are considered (and there are a lot of them) the tax rate in the US is damn near flat. Some variation but nothing to get in a fuss about if you think it “unfair” you pay more than someone else.
This. I always find it amazing when childless people say they shouldn’t pay for education funding. I just look at them and ask if they want the brats roaming the streets with no skills, scavenging and stealing to stay alive. You can only stay in your gated community so long before you have to drive the Beemer to work.
We all pay for things we don’t use, and probably wouldn’t want to pay for. It’s the way living in society works. Except of course if that thing is abortion services for the poor, in which case that would be terrible to make anyone pay for it because it might infringe on their religious beliefs. Not that the religious beliefs of those who don’t want to pay for the military are of any importance, but I digress.
