Progressive Income Tax

OK, I am feeling stupid. I came across an article about an American gambling magnate (I forget his name, a behind-the-scenes GOP guy). He was quoted asking;

Why should I pay a higher percentage of my income in tax than anyone else?

Well, I understand the importance of the progressive income tax. From the richest, much is given so much is expected. The rich should help the weak. But in truth, I am a bit fumble-tounged right now. Help me out here.

What is the best, most logical, explanation for the progressive income tax?

I think the logic is that the rich are better able to pay a larger percentage of their income than the poor.

Lets say, hypothetically, that it costs $20,000 a year to live in this country, and you’ve got two people, one making $21,000, and the other making $210,000, but you don’t want to mess with progressive taxes, so you just charge everyone 10%.

So the first guy pays $2100 in taxes, and the second, $21,000. After they’ve paid, the first guy is left with $18,900, and the second with $189,000, but look at how they’re affected. The first guy doesn’t have enough money to survive, while the second guy still has much more than enough.

Let’s slow down, shall we? First, the guy might have been Steve Wynn. He’s been vocal about things like this as of late.

Second, your: “much is given, so much is expected” make an assumption that all rich have been “given” their wealth. Now if you mean that they’ve been the recipients of good fortune and they should help the less fortunate, I’m with you. But that particular moral argument is one for charity—voluntary giving—not for the government putting its hand in your pocket.

Third, that quoted bit reminded me of this quote:

You might want to be careful with that kind of thinking.

But I think that the most important thing about your post is that you couldn’t come up with a logical defense. maybe you should consider why that was the case. Seems like you’re assuming a conclusion before thinking it through.

One argument is that the rich benefit disproportionately from the public services paid for by taxes. Who benefits more from police protection than the rich? From a money system guaranteed by the government? From a regulated stock market? From a judiciary that enforces contracts? From the Department of Defence securing the borders? They have far more to lose than the poor, so whatever guarantees their security definitely benefits them more.

It’s in this sense that the rich are “given” their wealth: It’s not provided to them, but the circumstances that make their wealth possible are provided to them, and they’re expected to pay for that with taxes.

The reason is that an incremental dollar to a rich person is worth a lot less than an incremental dollar to a poor person. Any calculus of benefits to various people of government is going to be incredibly subjective, and so while I see the point I don’t see a good way of turning it into tax policy. Should we tax someone living in the middle of Manhattan and getting benefit of all sorts of services differently from someone living in the middle of the desert?

If you doubt the marginal utility of money, think about how much an inflation adjusted dollar was worth to you as a kid versus how much it is worth today, or how little it is worth to Bill Gates. It is fairness, pure and simple. Plus, having the same rate for all would clearly result in a rate lower for rich people, which would hurt the not so rich by reducing services or increasing taxes. It is really that simple.

Yes, this is why the rich should pay more than the rest of society, but it doesn’t follow that they should disproportionately pay more. It seems more straightforward to argue “the rich use ten times the government services because they have ten times the stuff; therefore they should pay ten times more in tax” than to argue “the rich use ten times the government services because they have ten times the stuff; therefore they should pay thirty times more in tax”.

To the OP: I think the only explanation is that we have a progressive income tax because that’s what we need to make society work as we expect. The government needs money and the rich have money. If they raised taxes on everyone else at the same time to be fair, there’d be a tax revolt. Thus, the progressive income tax.

The marginal utility of an additional dollar earned decreases as income increases.

A 10% raise could have a significant effect on the living conditions of somebody making $20,000/year, while that “same” 10% raise for an individual making $200,000/year will not change their overall quality of life nearly as much. A 10% raise for someone making 2 million a year - even less so.

No one can become rich by the efforts of only their toil, but only by the discovery of some method of taxing the labor of others.
–John Ruskin

From The New Republic:


The bottom line, really, is that Republicans attempt to conflate income and productivity, as if they were the same. They are not. Income is a measure of how much a person gets to consume; not how much he produces.

The output of goods and services is actually a product of the people who produce it. They do that by nailing boards, writing books, coding software, paving roads, and other kinds of work. The fact that some people get to consume a disproportionate share does not mean they produce a disproportionate share.

In fact, to the extent that the super-rich get most of their income from owning things, rather than doing work, they produce less than everyone else. The part of the nation’s income that goes to them is a kind of tax on everyone else (the people who do work). It’s only fair that some of that unearned income go to pay to support the system that makes that unearned income possible in the first place.

I won’t argue that the rich were given their wealth. But it’s pretty undeniable that the rich have wealth - it’s pretty much right there in the definition.

So if you’re going to collect taxes, you might as well collect them from the people that have the most money.

And to answer this guy’s question specifically, I’ll have to assume he’s got a really bad accountant. Because most rich people pay a lower percentage of their income in taxes than anyone else. The tax laws are written so that most of the income that the rich receive doesn’t count as income for tax purposes. It’s counted as dividends or investment returns or capital gains and it’s taxed at a much lower percentage than what you or I pay on our income.

Lower incomes disproportionately pay a higher percentage on the basic cost of living, so it seems fair to me that higher incomes disproportionately pay a higher percentage in tax. If we had a government-provided basic income, and it was enough to live on, then I might agree with you.

By any metric you choose, some of the rich will deserve their income and some won’t. It would be very hard to write a tax code based on who deserves what. And not only the rich could get dinged for being unproductive. Is a blackjack dealer more or less deserving of income than a medical lab tech ? It is not a good argument to get into.

Actually it’s not that simple. Because it is not fairness that is at the heart of it. If it were, all billionaires should be taxed at 90% or so.

Extremes of wealth and income are unhealthful to a society. Beyond a certain point there is little moral significance to the distribution of wealth. The rich are not better people. They are more fortunate.

Fairness is the reason for progressive taxation. The level of taxation depends on a lot of other things, such as not being high enough to force the rich to leave the country. But all that is a second order effect.

Well, there is fairness and there is fairness. I think differing rates of taxation combined with an easy availability of loopholes and special tax treatment of the rich makes a rather thorough mockery of the principal of equality before the law.

My policy preference is for a flat or flatter tax rate, lower rates overall, a vastly expanded personal deduction and the elimination of all or nearly all other deductions.

“From each according to his ability, to each according to his needs”, that’s the basis for a just tax system.

This is the best practical argument, IMO.

The country needs a certain amount of money to function (the amount required will vary based on your political persuasion). So the question becomes how to raise it. The method that is the most economical efficient is to raise it from those dollars least likely to be used on economic activity. This is pretty clearly the marginal income of the top earners.

The other argument I like is that those with the greatest income have the most at stake in preserving the system that allows them to earn their wealth. Societal breakdown has a far greater impact on them than on those making minimum wage.


Emphasis mine: The question of fairness in taxation exactly comes down to the proportionality of it. You can’t call X scheme “disproportionate” without establishing how scheme Y that is proportionate, works.

Here’s a perfectly fair tax scheme: Everyone pays exactly the same amount, which is $1,750 per year, regardless of income or property. What could be more fair than every person equally splitting the cost of government? Bringing income level into it is just punishing success–why should I pay more because I have a high paying job?

Every taxation scheme beyond this one is effectively progressive. It’s not a question of whether taxation should be progressive, it’s how progressive it should be.