The concept behind progressive taxation is the theory of marginal utility, which says that the value of a dollar goes down with each additional dollar earned. For example, if you only have $10, an extra dollar is a lot more valuable to you than if you have $1 million.
The curve of utility is not linear. In other words, a 10% tax on someone earning $30,000 ‘hurts’ a lot more than a 10% tax on someone earning $1 million, because a 10% loss of 1 million is generally less painful to the taxpayer than a 10% loss from $30,000.
If that was all that mattered, a progressive tax that matches the utility curve averaged across all taxpayers would be fair and reasonable.
HOWEVER…
Socialists say they don’t want to plan and run the economy centrally. But for that to happen, you need capitalism. And capitalism needs capital. It needs rich people. In a world of 70-90% effective taxation, there will be no money to invest in the next SpaceX, or the next Apple. Any venture large enough to require large amounts of startup funds will not happen.
It’s ironic that Silicon Valley seems to be filled with young socialists, all of whom are dreaming of their own start-up. And who funds Silicon Valley start-ups? Primarily, venture capitalists. And who are venture capitalists? People with lots of money - often people who started up their own tech companies, sold them, and now invest their money in other tech companies - along the way, helping those companies with the lessons they learned on their own ladder to wealth.
Even in your own little town, you’ll often find small startups like restaurants and such funded by wealthy investors. Sometimes it’s a wealthy uncle in the family, or a family friend, or an angel investor someone knows, or whatever.
Get rid of the billionaires and millionaires, and you end capitalism. And then you are forced to centrally plan everything, whether you intended to or not.
There are other ways you can destroy capitalism and force central planning on people. Federal regulations, for example. Make it too burdensome for private individuals to thread the morass of regulations laid before them, and you can cede a market to the government and force central planning on everyone.
But the main point is that taxation isn’t just about applying equal pain to everyone. If you truly believe in free markets, you have to believe that people are free to profit from those markets in proportion to how much value they deliver to their customers (value measured in people’s willingness to trade dollars for what you are offering). A key aspect of capitalism is that capital must be allowed to accrue to those who have demonstrated the ability to generate value with it, and they must be free to re-invest that capital in the economy and not have it taken away by government.
If Elon Musk had his profits from PayPal taxed at 90%, or even 70%, there would be no SpaceX today, because Elon spent pretty much all of his millions on the Falcon 1, and would have been flat broke had the last Falcon 1 exploded. All his chips were on the table. Had he had 50% fewer chips, SpaceX would never have happened. The same goes for Jeff Bezos and Amazon and Blue Origin.
Government planning gets you the SLS rocket, which has cost $18 billion so far, which will not fly for two more years at least, and which will cost 1.5 billion dollars per launch. SpaceX’s Falcon Heavy can lift about half of SLS, but it does it for less than 10% of the cost per launch, and it’s flying now and only cost somewhat over $500 million to develop. Space launch costs have dropped from $6,000 per kg to under $1000 per kg. If SpaceX’s next rocket flies successfully, it could drop to under $100/kg. That will save space launch customers more money per year than the revenue that the government would have got from Elon Musk by taxing his PayPal money away.
We are FAR, FAR better off having allowed Musk to keep his money than if government would have confiscated most of it, because that billion dollars would have been lost in the maw of government and would have changed nothing.
In terms of helping the poor, the low cost of space launch created by the private market has enabled the development of a global constellation of tens of thousands of internet satellites that hold out the promise of providing global high-speed, low latency internet connections to everyone on the planet. This wll provide instant competition to every ISP, and it will do more for development in 3rd world countries than most government aid has done for decades.
All because we let billionaires accrue capital and government didn’t manage what they did with it. And you can look at all the other world-changing statups, from Apple to Qualcomm to Fed Ex and Amazon, and see the same pattern. In a world of 70-90% taxation of the ‘rich’, none of those companies would exist today.