Price discrimination. Simply put, the rich will pay more, so they do pay more. In other words, the poor will stage an uprising/revolt (and/or refuse to work) at a lower tax rate than the rich. It’s all about maximizing revenues. This isn’t a moral argument, but one of practicality.
Is it fair to impose a speeding fine of $155 dollars to a poor person struggling at to a billionaire? By imposing it on the poor person you may cause undo hardship, to the billionaire it’s a invitation to keep driving fast as there is no real penalty.
Though you can argue that taxes are not a fine, they are enforced though fear of imprisonment, supposedly for the ‘public good’ and that money redistributed, same as a fine.
Both come down to is it justifiable to take a large amount of money from someone struggling, is this what you desire for yourself, to be in a position of having to pay out large sums of money when you can’t feed your family? The answer is clear to me, this is not the type of society anyone should have to be in.
If we are still desiring a government to impose order by fear on it’s population, we will still need money for this type of government, which they will need to get it from the people who are not struggling. These people should not care as all there money needs are met, if they do care perhaps a state program can be set up to allow these people counseling.
But, now the wealthy person, who probably got there by owning or running some type of business, knows that she will have a workforce available to her which has a standard minimum level of education, health care, has access to roads and maybe public transportation to get them to her factory, etc etc.
In this way even if a wealthy businessperson gets less direct benefit from social services, education or whatever, they are still benefitting from a higher overall level of society. A rising tide lifts all boats.
Or at least so an argument would go…
How much of this is a justification for progressive tax structure, and how much of it is a justification for a larger government budget?
Obviously the rich have more money, which means they can afford to pay more taxes. But should they be taxed higher. Most of the arguments here are that they have it, so we should take it, because it hurts them less.
Simply put, arguments for a progressive tax structure shouldn’t be used as arguments for a larger budget, you shouldn’t NEED their money. If a guy making $30k a year can only contribute $5k, build your budget around that. That’s what society is willing to contribute.
The only true argument for progressive tax structure would be that richer people benefit proportionally more. As if rich people use the federal highways more than poor people. From there, there are arguments to be made. A guy in a large home with lots of stuff needs police protection more. A fire would require more operating expenses. In some cases it makes sense to tax proportionally to his wealth. Most of the time it doesn’t.
On the other hand, there are things we all pay for like patent and trademark protection, managing the broadcast spectrum, engaging in trade issues with foreign nations, dredging harbors, etc. that greatly benefit the owners and executives of corporations that rely on those things to conduct business.
The marginal utiltiy argument is compelling, but it is not necessarily backed up by any empirical evidence. However, just because the empirical evidence is lacking doesn’t necessarily mean it doesn’t make sense on a social level. Nor does marginal utility offer the best measure, IMO. What about total utility? What about marginal social uitility (or is there such a thing?)? The bottom line is that a progressive tax system has been determined through the years as socially “fair”. I do not mean any particularly correct definition of fair, since individualy we have our own ideas. But collectively it has been, through decades of elections and such.
I know it wasn’t your central point but we can say the following: “In a way, the [tax structure] is ‘unfair’ to [some class]” for any tax structure we can come up with. It’s partly why I don’t like using the word “fair” when discussing taxes.
Right. The concept of “fairness” has no place when it comes to tax systems. What’s fair to one person is unfair to someone else. Rather, than trying to find the “fairest” systems, the goal should be to find the best system: The system that provides the the government with the funds it needs at the least economic cost to the overall society.
That is your preference, it is hardly a statement of fact. Generally Public finance economists think of taxation as a three legged stool: Efficiency, Equity, and Revenue. None is more important than the other, all are needed.
There are lots of good reasons to tax the rich at a higher rate than the poor.
You can’t get blood from a turnip. We want to a huge military, lots of roads, bridges and hospitals and lots of prisons to store the unruly poor. That costs money and the rich have more of it.
The rich benefit more from government services. Do the poor really care if we have a strong military? Would their lives be adversely affected if our government was overthrown? It is the job of the police to protect all of the assets of citizens. They protect all three dollars of the poor person and all three billion dollars of the rich person. Which one of these has the most interest in a well paid police force?
Income is a nebulous term. The truly wealthy make a lot of money in ways other than a simple paycheck and there are ways to keep that money from being defined as “income”. Of course the rich don’t get out of paying income tax completely but wage earners don’t even get a chance to try, the money is taken out of their checks before they even see it.
Lastly, the income tax may be progressive but no other tax (that I can think of off the top of my head) is. And there are lots of taxes that we all pay every day.
The wealthy make more use of our infrastructure. The factories they own (including myself - via stock) pollute the water. The trucks I own (via stock) use the highway infrastructure. They have assets to loose, so they are more interested in our court system being functional and fair, more interested in a criminal justice system that will protect their assets. When the Army is out there protecting U.S. interests abroad, those interests are heavily weighted towards the haves.
So isn’t that a justification for business taxes as opposed to income taxes?
A major flaw in that argument is that citizens want the government to do certain things, and those things cost money. Want a large military? Want to keep people from starving in the streets? Those things have to be paid for. And for all the whining from some people for a smaller government, what it almost always turns out they really mean is they want less benefits for other people, and more power over them. But don’t you dare touch their benefits.
There’s such a thing as sin taxes. Extra taxes on cigarettes, on oil, on unhealthy foods in some places, that are designed to punish or discourage people indulging in a certain bad behavior. A higher tax rate for the rich would be sin tax on the sin of being rich.
A progressive tax doesn’t punish rich people for earning money. Suppose you’ve already earned a million dollars this year, and you’re trying to decide whether to earn one dollar more. Yes, you’ll have to pay some tax on it, but you get to keep the rest. If you go ahead and earn that next dollar, you’ll be better off than if you don’t. I wouldn’t call that a punishment. There’s no rate in the current tax structure that actually discourages people from making money.
There’s a common misconception that tax brackets apply to all of your income. That if say you make $199,000 and pay 28% (just making up numbers, I don’t know the actual rates offhand) then if you make $1,000 more, you get moved up into the 33% bracket, so you’re making less money.
That isn’t correct - each dollar is taxed at its marginal rate. Meaning that your first $10,000 is taxed at 6%, then everything between $10,001-$30,000 gets taxed at 12%, etc. Again, numbers made up. In any case, you can never make less net income by making money.
I don’t see how that’s right. To a guy with $5.00 and a better mouse trap, the existence of a free market is much more valuable a thing than it is to Bill gates.
On another note, we all benefit from roads and a military, etc. I don’t see how someone who makes $500k benefits ten times more from that than someone who makes $50k—and that assumes a flat tax rate. Make it progressive and you have an even harder time justifying the amount paid in being commensurate with some increased benefit.
Another way to look at it, for me, is that we all have a responsibility to kick in. And let’s say that someone with more money should kick in more. A flat tax does that with the underlying fairness of asking each person to contribute the same amount of his time. Let’s say we all pay a flat 30%, well, then each work from Monday morning till noon Tuesday for the government and the rest of the week for ourselves. That seems eminently fair to me, even though one guy is putting in 10 times more money.
Would you be willing to extend that rate to things other than payroll income, so that it was the total real income, rather than strictly payroll income, that was being flat taxed? How would you solve the issue of poor people spending way more of their money (and hence time) on stuff like gasoline taxes?
Taking the case of roads, yes we all benefit. In my case, I get consumer goods brought to my neighborhood stores, and the ability to commute to my job. The owners of UPS get consumer goods brought to their neighborhood stores, the ability to commute to their jobs, and an infrastructure that enables them to make millions of dollars. I’d say they’re receiving more benefit.
They do. And they pay more.
But to keep the discussion clean, I’d leave corporations out of it. Let’s keep it to individuals with disparate incomes: $50k and $500k. If we get it to work there, we can tackle the other stuff. If we can’t get it to work there, there’s no point moving ahead.