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October 19, 2003

Progressive Taxation

One of the tenets of liberalism is progressive taxation: the more you make, the more proportionally you should pay in taxes. I've always kinda accepted that as reasonable. Take 35% from a poor family and they starve, but take 35% from a millionaire and he's still eating steaks. Simple.

But in the face of the persistent call for flat taxes from the talk-radio crowd, I started thinking about why rich folks should pay more and why progressive taxation intuitively seems correct to me.

In a nutshell, the generation of wealth places more of a burden on the infrastructure largely built with tax dollars. Plus, wealthy families tend to depend more on regulations and oversight provided again by government.

The typical middle-income family earns their income largely based on their labor, part of which goes to income taxes and Social Security. They'll use the roads to get to work, subsidized data infrastructure to communicate and manage information, regulated banks to pay for stuff, and various city services as they progress through their day.

That family's boss, however, will put more of demand on the almost invisible services and regulation provided by government tax dollars. For instance, the MBA that helped put him in his management position was earned at a public school; the stock market from which a large portion of his income derives is heavily regulated by the federal government; the small-business loans and tax exemptions he enjoys as a business owner are provided by the government to stimulate business; the public schools educate his workers; and almost everything his business uses to make money--roads, phones, airways, postal services, electricity, water, vehicles, the clean environment, commerce laws, and business subsidization--all derive from the government. Add that to the fact that he earns his profit from the work of each of his employees, who in turn are using the infrastructure, and the boss can be seen as being on the top of a pyramid of services and franchisement provided by tax dollars.

The more wealth a person obtains, the higher up the pyramid of demand he finds himself. The uber-wealthy depend on international treaties, tariffs, and other government intervention to guarantee America's dominance in markets outside the U.S. The U.N. and World Trade Organization--subsidized by the federal government--come into play for those at the top of Bechtel and Halliburton's food chain, for instance, in Iraq.

The average family doesn't directly benefit from such things, and in some cases, like NAFTA, they may suffer while the wealthy still prosper. So, while a flat tax would draw more money from the wealthy simply because they earn more, it wouldn't properly reflect the amount to which the wealthy have used the system put in place by the government to earn money.

Plus, it's not well-known that Social Security taxes end on money earned past around $85,000. In other words, someone earning $500,000 a year pays the same into Social Security as someone earning $85,000.

In my mind, progressive taxation works the way it's supposed to: the wealthy "owe" more of a debt to the society from which their wealth is created and should therefore help sustain those who don't directly benefit from the myriad benefits and opportunities government provides.

Posted by tat at October 19, 2003 08:30 PM

I think the relationship of burden you are talking about between the government and some people should also include the extremely poor. if the burden was a graph, it would look like (everyone's favorite) bell curve.

the reason I say the poor is because they use a lot of government resources and place (relatively) little back in. granted, it's probably a lot cheaper to hire a bunch of minimum wage gov't employees to handle the doling out of welfare checks than it is for the gov't to pass a treaty like NAFTA (total monitary effect on the national economy). the big difference, the very poor don't have the gov't working for them.

in the past few years, programs that were designed to help poor people get back on their feet and actually contribute to the progress of this country have been cut and squashed out of existence. all of the money has been diverted to pay for the tax cut for the rich and the "war on terror/Iraq/Osama/Sadam/...whoever". just today on the news, the almost $400 billion dollar debt was blamed, by the gov't, on these two things plus a sagging economy. on the other hand, in this time of need, we can't forget to give to our friends at Bechtel and Halliburton to support and promote the American way of life!

I'll get off my soap box for now. you just struck a nerve (you're good at that!).

thanks for letting us peek into your brain, Bryan!


Posted by: hareball at October 20, 2003 08:44 PM

I agree wth your point about the very poor actually drawing out more than they pay in, but I'd also venture to guess that the wealthy to a large extent have benefited far in excess of what they've actually paid in, too. Think of all those loopholes, offshore accounts, etc. the news was full of during the Enron and Tyco meltdowns.

Besides, I think common human decency kicks in at some point and we as a society believe a minimal standard of living is in everyone's interest to provide to the poor.

Posted by: Bryan at October 20, 2003 10:40 PM