So, if the justification for taking more from Mr. 500k than Mr. 50k is the pain felt by the person, it follows that someone who is a billionaire would hurt even less.
And they would with a flat tax. You make more, you pay more. Yet, there is an underlying fairness to the system.
Like I said earlier, most of those other taxes can either be opted out of or curtailed. I think that income tax is special. We all have to work to earn money to live, and you’re taking away a portion of the money someone earns through their work.
It’s perfectly relevant. The more progressive the tax structure the more redistributive it is…the more your asking Person A to pay for Person B.
It’s not arbitrary at all. If you have to drag yourself away form your family or whatever 5 days a week to earn a living, and some portion of that time is to satisfy your obligation to the government, the amount of time one is asked of give should be equal for all.
All of this can be addressed by business taxes, which I think would be fine. If I feel the taxes are so onerous I don’t have to open a restaurant. But the thread is about been d personal income taxes and the progressiveness of it.
Even flat tax proposals are slightly progressive in that they exclude a certain level of income from taxation. But their absurdity is that they consider marginal utility not as the curve which has been demonstrated over and over but as rising to 100% at some given level of income.
As for your $50K and $500K examples - give them both an extra $5,000. Do you think they will spend it in the same way? Do you think it will make an equal impact on their lives? Now, try $5K and $50K. Where I live $50K is not much, and an extra $5K might mean the difference between paying a mortgage and foreclosure. An extra $50 K might mean an extra luxury, perhaps, but it is more likely to be saved.
Do you reject the concept of marginal utility? Do you reject the goal of equal pain for all taxpayers?
I don’t reject the concept. I reject the idea that it should dictate the amount we all pay on the fruits of our labor. As far as equal pain, I think that we should all have the “pain” of contributing equally.
So what? Say that everyone works 40 hours a week, except for those who choose to do more out of the sheer joy of it. Some are more productive than others. Why should they get extra goodies just because they were born smarter or faster?
Of course, I’m making a thought experiment here: the intent is to separate out the issues. There are some obvious problems with ignoring incentives.
Your argument is at bottom a rights-based one: it appeals to the idea that people have equal (and proportional) rights to their output. There’s something to that, though it is profoundly ahistorical. After all, the merchant class has only held sway for a few thousand years, earlier the military possessed the rights. After all, the farmer or basket weaver would be lost without soldiers to protect them right? So they enjoyed their output at the King’s discretion. And before agriculture, communal obligations trumped individual rights.
Locke formalized the merchant’s argument, by saying that he who picked the fruit combined his labor with the land and thereby gained rights to the produce. One of the best responses to this way of thinking was by Burke (and Proudhon, oddly enough). They observe that morally speaking we all are born and we all die as debtors. There’s such a fantastic stock of physical, intellectual and social infrastructure that those in the West enjoy. Without these assets, we would all be paupers, even Bill Gates. Does Gates earn a super-proportionate return from them? Arguably yes, but admittedly this is hard and possibly meaningless to measure.
Oh yeah, Locke has his intellectual descendants. Nozick among others attacked utilitarianism. In his thought experiment, he asked why Wilt Chamberlin should have to pay an enhanced marginal tax; IIRC his argument was similar to magellan’s.
Note to my fellow liberals, moderates, and defenders of the progressive income tax:
Sorry gang, but it’s my understanding that there’s no killer argument in favor of it. Economists delineate the benefits principle (taxes should be proportionate to benefits received by big guv) as well as the ability to pay principle (taxes should be related to the payer’s level of economic well-being). The first is difficult to measure. So is the second: attempts at rigor founder on the underlying subjectivity of cardinal utility. Personally, I’m willing to say that the $50,000 family with 2 kids could use $100 more than the $100,000 family (though the 2nd typically needs to budget their expenses as everyone does). But that’s not measuring happiness: it’s shooting from the hip.
This doesn’t mean that we can’t make political judgments. At bottom I suspect that liberals tax the rich more for the same reason that Willie Sutton robbed banks – that’s where the money is.
Careful. I believe that you think we should all have the pain of contributing proportionately. I don’t think you’re defending a poll tax and only a poll tax, whereby everyone pitches a fixed amount of funds regardless of their wealth or income. It might be an interesting system: in the US newborns and Bill Gates would each pay about $8000 per year, if I have googled properly.
I would argue that the utilitarian argument actually is fair since an extra dollar has much less value to Bill Gates than it does to someone making minimum wage.
As far as work and productivity, is anyone asking that people work twice as much? Is anyone saying that wealthy people should pay twice as much on all of their income?
And again, I’ll argue that wealthy people are not necessarily more productive.
You say that you mean productive in the “tax sense” rather than in the sense of actually doing useful work (which is what I think you mean by “measure of a man”). The problem with that is that you’re talking about being productive in the context of “working twice as much for the government”, but then change the meaning of “productive” to something separate from actual work when it suits the argument. You can’t have it both ways. Am I misunderstanding you?
Sorry Measure for Measure, but it’s your belief that there’s no good argument. If you want to say it’s your “understanding” that’s your right, it’s a free country, but the way you’re using the term “understanding” implies that there is some ultimate truth here, like a physical law, and that those who disagree simply aren’t understanding the facts. How the burdens of society should be distributed is very much a matter of opinion. We’re talking ethics and morality, not physics.
And comparing belief in a progressive income tax to Willi Sutton’s reasons for robbing banks is pretty damned close to argumentum ad hominem.
It’s my opinion (and I once started a thread about it) that discussion around taxes and fairness misses a critical point:
Income and wealth are two quite different things.
It is true that the wealthy pay most of the federal income tax. It is true that folks with high incomes pay most of the income tax. But it’s not true that we have a very good system for taxing wealth itself.
An individual could be worth billions, live entirely off borrowed money secured by those billions, and avoid paying a single dime in income or capital gains taxes.
Overall, the system is surprisingly proportionate right now…in round numbers the top 20% own about 85% of the wealth and pay about 85% of the taxes. Specific numbers are very hard to come by.
I’m amused when the low-incomers who pay almost no federal taxes moan about the rich skating, and I’m equally amused when the wealthy–especially the liberal wealthy–pretend they support tax increases when what they really support are increases on income tax (or even capital gains taxes) which actually have a trivial effect on their personal wealth.
Take Google, for instance (I realize this particular example is a corporation but it will give you an example). There was a nice article in this weeks Bloomberg about how Google’s overseas tax rate is effectively 2.4%. They set up perfectly legal routing of money from Ireland to the Netherlands to the Bahamas.
All of us want to help the hapless, but most of us want to do it with the Other Guy’s money. Most of us want to not be evil, but few of us want to pay taxes even if we have some sort of generous liberal bias about how good government is.
It’s my opinion a progressive tax rate is fair. As a net payor I’d like to see a little more appreciation from the folks who apparently think I chanced upon the money under a tree, and from the wealthy I’d like to see a little more honesty and a little less hypocrisy.
If I recall, there was not a single good suggestion in my prior thread about how to actually tax wealth instead of income, so for now let’s focus on spending no more than we take in. That won’t stop fights about how much to take in but it will keep our kids from having to bear the consequences of us just borrowing the money.
I guess it hinges on how we understand the word ‘punish’. The point I was trying to make was just that a higher tax rate for the rich, in my mind, is justified by the fact that the rich are inferior to those who aren’t rich. Other justifications may exist, but that’s how I see it.
As far as the rich go, what are their benefits? They don’t need social security and medicare.
Think about it this way: Imagine immigration laws didn’t apply to people making more than $1million. Once you cross that point, you are free to live and work where ever you want.
The US government, using tax payer funds, has asked you to put together a little ad campaign to to try and encourage foreign rich people to live in the US. What’s your pitch? In other words, what are the benefits they receive as part of paying the current tax rate?
A powerful economy that can make them more money? An economy that allows millionaires to increase their wealth faster than those below them? A set of personal freedoms that can’t be rivaled, unless you count the Netherlands or a lot of Western Europe?
I’d also crow about our amazing infrastructure, but depending where the foreign millionaire is from he’d probably find our works inferior.
You’re making an excellent argument for taxation and government involvement, but not for a progressive income tax structure. If anything, this is an example of where user fees should be applied and not income tax.
It’s great that the government established a port. One guy goes down and decides if he spends all day he might catch a fish. Another goes down and realizes that a deeper port means he can use larger boats. And a third guy decides that with all this new activity, he could set up a hotdog stand.
All three are making use of the port, but only one of them is paying for it.
That’s kind of a cheap argument, but consider the various business that use the port. Assuming everyone has equal access, shouldn’t each user pay equally? Instead, we have a system where the smart ones bringing in goods people want pay more than the idiots who bring in crap.
And one further point. Consider two businesses are using the port, one success and one not. The successful business is bringing in products people want, benefiting society. The sneakers get shipped to stores benefiting shipping companies. The stores need to get built and hire employees. There is a huge chain of taxation that results from the smarter guy bringing in goods. But our system is designed to tax him more as a result.
I really hate that this argument has to be made in every thread on taxation.
As far as our current civilization goes, it seems the people with pitchforks and torches are too lazy to go after the rich, and would rather target their own neighbourhood. By that I mean, crime and violence are higher in low income neighbourhoods (I think), requiring more police involvement.
The wealthy realize they have things to lose and spend their money to avoid that. Who do you think is more likely to ignore a dead battery in a smoke detector? Who is more likely to pay for a security system? If I had a house full of priceless works of art, I wouldn’t rely on the local PD/FD, I’d make damn sure it was safe.
But aside from all of that, what is the justification for progressive taxation? Wouldn’t all the wealth people require and benefit from the same protection? As it keeps getting said, three guys making $50k, $500k, and $5million all benefit from avoiding a socialist revolution. A flat tax would have them pay $5k, $50k, and $500k. Now we need a reason for the richest guy to pay more: $5k, $70k, and $1million.
First, I’d like to commend you on a well-thought-out, very interesting post.
Now, I notice you left out “worked harder”. That should be in there, too, along with smarter and faster. In fact, I think it the most important one, for the very reason that the other two are accidents of birth. When the government starts punishing or rewarding people for accidents of birth we get into very strange territory indeed.
But to answer your question, 1) it’s fair, and 2) it benefits both the individual and society. I’ll explain. Let’s say we all have to work 40 hours and 12 of those hours are to satisfy our obligation to the government. Then, I have 28 hours to provide for myself and my family. And the more productive I can be during those 28 hours the better. So, it behooves me to situate myself in a job that aligns best to whatever talents I might have. If I’m better with numbers than I am with my hands, it benefits me to find a job that requires more math than carpentry skills. If I’m over 7 feet tall, I’d do much better in providing for myself and my family by pursuing a career as a basketball player and not that of a jockey. Wilt Chamberlain might love painting landscapes, and be pretty good at it, but can he attain a greater level of success doing that than dunking a basketball. Probably not, but that’s his choice.
Leaving the fantastic examples out of it, individuals do better—and benefits more—when people align their talents with a job. The work product is better, and that improves our society. The reward they can receive is greater, and that improves their lot in life and increases the amount that person will contribute to the public coffers. So, society should encourage people to be as productive as possible in that same 28 hours. (To the full 40, yes, but the incentive is dialed up in an example where every hour is for your own benefit.)
Absolutely. If you walk into a room full of infants, the notion should be that they are all equal in the eyes of the government. Of the hale, gender, skin color, height, intelligence, athletic ability, artistic ability, manual dexterity should matter not one whit to the government. Except as far as its structure should allow/encourage people to situate themselves in a job that best aligns with their talents.
Your pointing now to what has been, which is interesting. For instance I’d like to know if, in a feudal system, a person who was given 10 acres of cornfield to work was asked to contribute twice as much to the King as the guy living next door to him who has been given 5 acres of cornfield to work? Or was it twice as much—plus. But as interesting as I find that, I’ve been talking more about what would be fair, not how it has been done in the past. Poll taxes were levied in the past and I’m not arguing for that, even though I find it much more defensible from a fairness standpoint than a progressive tax.
Well said. This is the notion, laid bare, that some people in this thread have put forth as the reason to tax the rich more. It is as correct as it is immoral.
Your first point is about inheritance, so should we tax that? Or would you like a reverse caste system where everyone is born equally poor?
The second is taxed as lottery winnings. What they do with it afterwords is also taxed. Do you want to someone access the merits of each person’s earnings? If it’s worthless crap you get taxed higher?
And lastly, if what you did was illegal, you should be punished under the law, not through some arbitrary “harm tax.”
Income tax is what kicks in AFTER all those things you describe. You have 4 people that managed to get their hands on $1million in capital. They will use that to continue to earn income, and they’ll be taxed on that income.
From there, should the person that invests wisely pay proportionately more than the person that doesn’t?
Two restaurants of equal size, both serving burgers and fries, both using 4oz ground beef and 8oz of potatoes. One produces food people desire and are willing to pay for, the other does not. One chef has skill that allows him to design a menu and manage his staff in such a way that people will pay a premium for the food he produces.
The better chef doesn’t advertise, he doesn’t need more customers or higher turnover, he doesn’t need more space or franchises. He produced a product that people are willing to pay more for.
You want to have the better skilled chef pay more into the system than the less skilled. Even though he doesn’t get more out of it.
ETA It seems Chief Pedant already said this better.
Which is why we don’t tax wealth, we tax income.
As far as I can tell, we already have a system for taxing windfalls such as lottery winnings, or a guy that sold a better mousetrap.
After that, the guy with $1million in cash, and the guy with zero, will both be taxed on their *next *dollar earned.
If they both have the same job at McDonald’s should they both be taxed equally?
Now, flip this around: let’s say the guy with zero cash on hand is a talented physician earning $100k a year. We have a tax rate for that. What if the trust-fund-baby continues to work at McDonalds, should he be taxed the same as everyone else?
This idea of wealth keeps getting shot back into the argument as if it’s relevant, but it’s not. That some people are savers (meaning they maintain their wealth) isn’t part of the tax system, at least as far as we’re discussing here.
Like with the restaurant, consider two farmers with equal land. One is hardworking and innovative, producing 200 bushels per acre or good quality corn. The other is lazy and stupid, producing only 20 bushels per acre or low grade feed corn.
What do they each owe to society? The each have equal opportunity, and benefit equally for society.
Personally, I’d like to see the lazy idiot suffer for wasting land that could be put to better use. Instead (ignoring farm subsidies for the moment), he pays a lower tax rate on his lower income.
The more successful farmer will pay more taxes, because he produced more. But a progressive tax system says he should pay *even more *than that. His hard work and talent means he owes society disproportionately more.