Friday 25 June 2004 - Filed under Essays
Dan has been commenting profusely on my blog (which I appreciate!) and keeps taking issue with my point of view on taxation. Rather than respond in some comment hidden deep within the site, I thought I’d write my response here.
The whole taxation issue is a debate of degree. I know of no Right-wingers who go so far as to say we should not have taxes. American obviously needs taxes. The issue is this notion of progressive taxation. If, for example, there is a flat $100 tax on something and I make $10k/yr and you make $100k/yr, the $100 is a much greater percent of my income than it is of yours. This is a regressive tax. If we change it so the tax is 1% of our income, then I pay the $100 but you have to pay $1000. Now we are both paying the same percent of our income. This is a flat tax. A progressive tax is when I pay 1% of my income and you, because you make more money, pay 2% of your income. This is a progressive tax and I would pay the $100 and you would pay $2000.
The argument against regressive taxes is that they end up hurting the most those people with the least. They also don’t raise much money — in our example the regressive tax raised $200 vs. $2100 raised by the progressive tax.
The flat tax makes a lot of sense. There are two main reasons, in my opinion, why the progressive tax is justifiable given the seeming logic of the flat tax:
1. It raises more money. In our example we raise an extra $1000 from a progressive tax vs. a flat tax.
2. It puts a larger percentage of the tax burden on those people who can most afford it. The richer you are the less your lifestyle is impacted by taxes. If you pay 30% of a $20,000 income, you are barely getting by on $14k/yr. If you pay 40% on $100,000 you still have a comfortable $60k/yr to live on. So you make 5 times as much as the other guy but live on 4 times as the other guy. That doesn’t sound so bad to me.
Think of it like this: if we had a regressive tax, the tax would have to be so huge that it would probably be greater than the poorest people’s total income and would be a rounding error for rich people. We would make a large percentage of the population destitute if we did that and the rich would be paying a miniscule percentage of their income.
With a flat tax, no one could be taxed more than they make, but the taxes would still have to be fairly high on the poorest people. With a progressive tax you can generate the revenue you need while still allowing poor people the opportunity to become not-poor. This is not altruism — it’s an economic strategy to keep our economy strong by getting as many people participating in it as possible. The more poor people we turn into middle class people the easier the tax burden will be on everyone.
A couple more points:
1. I don’t believe that progressive taxation creates any disincentive to create wealth. More is still more and you can have whatever lifestyle you want. As a friend of mine once said, I look forward to the day that I have a million dollar tax bill.
2. Neither is progressive taxation an incentive to be poor. Being poor sucks and no one disagrees with that. No rich person would choose to be poor to avoid a tax bill. This is a fundamental test of fairness — how would I want it if I were the other guy?
3. The level which our government spends should be predicated on our needs and goals, not our ability to raise money. Progressive taxation should not be an incentive for government to be wasteful or to grow beyond our collective ideas of our needs and goals. The argument should not be valid that we shouldn’t tax progressively because it encourages spending.
Bottom line: we should tax progressively because it is fair. It puts most of the cost on those who have benefited most and who will be impacted by it least. It is a tactic to fuel economic growth by turning people who are tax burdens into people who are tax payers. Any strategy which puts more of the tax burden on the poor ultimately hurts the rich, too, because we hobble our biggest potential of economic growth.
Image how this American economy would thrive if we had a 0% unemployment rate and a 0% poverty rate. We could all pay less taxes because we’d have more people paying and less taking.
Finally, to paraphrase the late great Paul Wellstone, we have an anti-welfare agenda in this country when we need an anti-poverty agenda. Not only because it makes economic sense but because it is the right thing to do. In the richest nation in the world, no one who works full-time should live in poverty.
2004-06-25 » lolife