Progressive Taxation

You may also be interested in my complete views on taxes.

Progressive taxation refers to a tax system in which wealthier individuals (or individuals) pay a higher tax rate. Progressive taxation usually refers to income tax, but other taxes, such as property tax or sales tax, can be progressive as well, although for some types of tax, like sales tax, it can be tricky to implement a progressive tax system.

Arguments for and against progressive taxation often hinge on highly subjective arguments about "fairness". Because people have different notions of fairness, and because it is unlikely that society will ever reach a consensus on this point, I believe that it is more productive to consider progressive taxation on the more objective grounds of whether it produces desirable effects for society as a whole. I particularly like to use small government and sustainable taxation as guiding principles. I will argue that progressive taxation can keep government small by eliminating the need for social welfare programs. I will also argue that progressive taxation leads to more stable, sustained tax revenue, and helps prevent economic dysfunction.

First, however, I want to explore some of the more common arguments against progressive taxation.

Arguments against progressive taxation:

People leaning more towards conservative and libertarian political viewpoints tend to oppose progressive taxation, but I think that there are some compelling reasons to question this association: progressive taxation can be one of the best ways to achieve the ideal of small government which is cherished by conservatives and libertarians alike. The arguments against progressive taxation usually come down to some combination of the following points:

Progressive taxation makes wealthier individuals pay more than their "fair share" of income. This argument is based on the notion of fairness, and assumes that the distribution of income or wealth in society is fair to begin with.
Progressive taxation amounts to a forcible wealth transfer, through the government, from the wealthier classes to the poorer ones, and that this is either undesirable, unfair, unconstitutional, or some combination of the above.
Progressive taxation sets up bad incentives, such as removing the incentive for creative entrepreneurial activities, or productive investment activities.

Are these valid arguments? It really depends on the circumstances. First though, I want to address the second point: all taxation is a forcible wealth transfer. So what? That's just how taxes work. Objecting to taxes on this principle ("all tax is theft") exaggerates by objecting to an almost ubiquitous part of modern life (or, in many cases, ancient life as well). This sort of viewpoint is not constructive in terms of advancing the dialogue on taxes or helping to build a better tax policy.

I find the other points more important to address. If you believe the distribution of wealth and resources in society, without progressive tax, to be fair (by whatever standard you believe in), and the incentives set up by the tax and economic system to be good, these arguments are powerful and correct, and it makes sense to oppose progressive tax.

If, however, you believe that wealth is concentrated in the hands of people who are not necessarily doing their fair share of contributing to society, and if you do not fully like the incentives set up by the economic system, then these arguments are not very convincing.

Why I support progressive taxation:

Given the current economic climate and tax system in the U.S., I support progressive taxation. However, my views on taxation are complex: I do not think that making the income tax system more progressive, would alone be the best way to modify the U.S. tax code. I actually oppose income tax out of principle. But given that we currently use the income tax for most federal revenue, there are several reasons why I support progressive taxation:

I support a tax system in which a person living modestly, who is struggling to make ends meet financially, would pay no tax.
In the current economic climate of the U.S., it is much easier to generate income by already having money (through investing), than it is by working or engaging in productive business. I see this as problematic, as it results in concentration of wealth (and power) in the hands of those who have it, and also sets up bad incentives for society as a whole, by making the incentive to work or directly create wealth weaker than the incentive to earn income through leveraging one's existing wealth (thus, only indirectly creating wealth).
In the U.S., the wealth is currently concentrated in the hands of a very small group of people, and the majority of people have very little wealth.
Progressive taxation limits the concentration of wealth, which thus limits the concentration of power, in the hands of a few individuals or corporations. I do not see any legitimate justification for allowing concentration of wealth and power beyond a certain amount. That is, it may be justifiable for one individual to have 10 times the purchasing power of another individual, but I think it is much harder to argue that it is fair or constructive for one individual to have 1,000 or 10,000 times the purchasing power of another individual. And yet the wealth disparity between the wealthiest Americans and the average Americans is much greater than a factor of 10,000. For example, Forbes published a list of the richest people in America, and as of writing this page, #10 on the list, Michael Bloomberg, had a net worth of $18B, whereas the median net worth for a family in America is somewhere just over $200K; this is a difference of a factor of 90,000. The factor would be much larger if considering the poorest Americans.

Can Conservatives and Libertarians Support Progressive Taxation?

In the American political dialogue it is often taken for granted that conservatives and libertarians oppose progressive taxation, and indeed, people with these political affiliations are often some of the strongest advocates against progressive taxation. However, it is not true that conservatives and libertarians always take stances in conflict with progressive taxation.

To conservatives and libertarians, the key issues with taxation are lower taxes and simplicity of the tax code. Progressive tax tends to be frowned upon, but there are many changes to the tax code that are in general supported by libertarians and conservatives, which have progressive effects. One such change is the elimination of the payroll tax, a regressive tax that is unpopular among conservatives because of its anti-business and anti-employment effects. Similarly, the simplification of the tax code by eliminating deducations primarily benefitting high-income tax payers can have progressive effects without raising the tax rate on any bracket. My tax plan proposes an elimination of the payroll tax, and my full plan, an elimination of income tax, making it appealing to conservatives and libertarians as well as progressives and liberals who will likely like other elements of the plan.

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