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.