Monday, April 18, 2011

Progressive Tax; a point of view.


Every so often you read a comment on a blog, news aggregator site or social networking site that makes you go.. yea... damn well said.

A fellow who goes by the handle CaspianX2 on Reddit did that today on the subject of why taxation should be progressive (i.e. the more your make, the more you should be taxed). I read it and thought to myself, yea, damn well said.

"Firstly, it's important to note that money is nothing more than a symbol, an idea. It might sound strange, but one dollar is not worth one dollar - that dollar bill you're holding is nothing more than a piece of paper, virtually worthless. It only has worth because we, as a people, give it worth. We say that that piece of paper is worth one "dollar", a universal unit in trade, to save us the hassle of bartering. The important part being, that piece of paper is nothing, other than what we as a society decide it will be, for the benefit of our society. That's how money works.

Secondly, and I know this sounds like double-speak, but one dollar does not equal a hundred cents. Mathematically, it absolutely is, but effectively, it couldn't be farther from the truth. Walk into a dollar store with a penny and try to buy 1/100th of a candy bar. Go into McDonald's with a dime and try to get 1/10th of one of their dollar menu items.

Basically, the less money you have, the less effectively you can use it, and this scales all the way up. If you make enough money to afford a car, you don't have to go to the shitty grocery store across the street, and can head to one with better prices that's out of walking distance. If you make more, you might be able to afford a Costco membership, and buy your groceries in bulk sizes, which is a lot cheaper. And maybe you can trade in that shitty used car that was all you could afford before for something that gets more MPG and doesn't require costly repairs every six months. And instead of buying a cheap pair of sneakers you'll have to replace in a half a year, you might be able to buy yourself a decent pair of shoes that'll last you a few years. In many cases, you end up paying less in the long-run by paying more in the short-run.

So having more money means you can use it more effectively, giving you more bang for your buck. But it also gives you more opportunity, and not just opportunity to lead a better life, but more opportunity for upward-mobility.

Think of the costs associated with getting a job. To work in fast food, you presumably need some clean clothes, maybe a bus pass. To be able to shop around for a better employer, you'll need decent, reliable transportation. To get a better job, you might need better clothes, a cell phone, a computer with an internet connection... and moving up the scale, you need a college education... and for that, you're looking at tuition, books, and the costs associated with spending the amount of time it takes to get through college without a well-paying job.

If you can barely afford the clothes on your back, you'll be lucky to be earning minimum wage... and maybe after a few years of scrimping and saving, you'll be able to get a car, and have some slightly better options. If you have a decent income, you have a much better opportunity to get a college degree in a high-paying field, or work your way up the corporate ladder.

That's not even getting into the facets of your life that indirectly affect your job opportunities. If you're wealthier, you have better legal options, which means that you're less likely to be convicted or spend time in prison, even for committing the exact same crime as a poor person. You have better medical coverage, which means less time spent having to call in sick to work, and being more fit also makes you a more appealing job candidate. There are even some ties between level of income and access to a nutritional diet - low-income folks generally eat shittier food because they can't afford to buy healthier food.

This isn't a fluke. It's how money works - the more of it there is, the more powerful a force it is, even proportionally, and the easier it is to get more of it.

However, there's another side to this too. The more money you have, the more expendable any portion of it becomes, even proportionally-speaking. Let's look at three guys, Allen, Billy, and Charlie. Allen makes $20K a year, Bill makes $200K a year, and Charlie makes $2 Million a year. Each is taxed at 10% of their income... but as need to happen sometimes, the taxes need to go up. Let's say they double, so it's 20% now - the same for all three, right? Hell, it's harder on the richer, because they're paying more money than the poor guy! But in actuality, it's the poor guy who's sacrificing the most because of this, because so little of his income is expendable. Now Allen needs to decide between paying the rent and paying for food. Bill needs to hold off on that family vacation to Europe he's been planning. And Charlie... well, Charlie will gripe about the number in his bank account being less than he'd like, and then he'll go and buy his twelfth Ferrari anyway.

Remember how I said "money only has worth because we, as a people, give it worth, for the benefit of our society". That money you supposedly "own" isn't even really property, it's an idea used to facilitate the operation of a healthy society, and it does so by making an easy, simple conversion of property into a common exchange value. But since its very nature is uneven and broken, it needs to be addressed as such. And since a 10% tax hike on someone earning $20K is not the same as a 10% tax hike on someone earning $2 Million, for the many reasons I've just stated, we have progressive taxation, where the wealthier you are, the greater a portion of your income you contribute in taxes.

To take this to an extreme, if there was an across-the-board tax of 50%, with wages in America what they are now, the wealthy would still be living comfortably, the middle class would be scraping by... and the poor would starve to death. Treating everyone the same is not fair.

Republicans and those aligned with them like to paint this in a way that's essentially "ganging up on the rich people", "punishing" them for "success". However, if you treat everyone the same, make everyone pay a flat tax rate, then you are punishing the poor, who are less able to afford it. And it's easy to point at the numbers and turn them into a picture that shows the terrible burden the wealthy have to pay thanks to progressive taxation... but the truth of it is, the reality those numbers translate into is one where the wealthy can afford to contribute more, without any noticeable change to their lifestyle, and it's not just because they have more to give, it's because the fact that they have more makes them less dependent on it, better-able to acquire more of it, and less affected by its loss (again, even by proportion).

That is why any reasonable capitalist society taxes the rich progressively more than the poor. It's not to "punish" anyone for success, it's because the nature of money makes it far more invaluable by proportion to the poor than it is to the rich."

1 comment:

Anonymous said...

The current Income Tax system has been falling apart for years.

Even CPA’s and tax preparers do not understand the Income Tax system, as evidenced by the different answers you get to the same questions about how to report various income transactions.

Just look at the enormous amount of tax court cases where people pay money to argue with their government over what is deductible, what is not deductible, what can be carried forward, what can be carried back, what are the facts and circumstances surrounding the income and/or deductions, etc. etc.

If this 75,000 page income tax code was clear and understandable, there would be very little arguments over much of anything!

So instead of people spending their time making money, they end up spending time and money figuring out how to comply with the government’s bookkeeping requirements, which change every single year!

This applies to the complications in figuring out the Earned Income Tax credit as well as complications in figuring out all the deductions and credits that rich people take advantage of.

The current Income Tax system is not good or fair.

The way it is set up and the direction it is going hurts everyone, including the poor.