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Should the Rich Pay More in Taxes?

Right now, the spotlight is on the expiring Bush tax cuts. Will the tax cuts be renewed for a finite amount of time? Or will they be allowed to expire at the end of the year, resulting in higher taxes for “the rich”? All this speculation has many revisiting the concept of being rich. And, of course, there discussions about whether or not the rich should be paying more in taxes.

Should there be a penalty for being prosperous? In a country that elevates the right to keep (and do what you please with) your own money almost to the level of something sacred, the issues raised by what to do with the Bush tax cuts hit strong nerves for many.

Do the Rich Have a Duty to Give Back?

One of the arguments in favor of allowing the Bush tax cuts to expire — and the main argument for a progressive tax system that requires the rich to pay a higher percentage of their income — is that the rich have duty to give back. Because the rich have received so much from our system, it is only “fair” that they give back a little more, finding themselves in a higher tax bracket that requires them to pay a higher percentage of income in taxes.

While many may agree that those who have more should pay more, they get stuck on the fact that the rich are being forced by the government to pay more. Sure, the rich have a duty to help the less fortunate. But it should be something they choose to do, rather than something that the government makes them do. After all, the argument goes, it’s their money, and they should be able to decide what to with it. We may need taxes to pay for some government services we expect, but when it comes to wealth redistribution and programs helping the less fortunate, many point out that the rich should have the option to spend their money on these things. Let them take up the billionaire challenge if they want, but don’t use government force to make them pay their taxes.

Would a Flat Tax Be Fairer?

In order to stop soaking the rich with “unfair” taxes in a progressive system, some feel that a flat tax is the way to go. Everything is much fairer under a flat tax, some argue. This is because everyone pays the same percentage of income. With a flat tax, the rich pay a set percentage of their income, say 15%, and the middle class and poor also pay 15% of their income. (Many flat tax proponents acknowledge that the poorest would probably still be exempt from taxes.) With no deductions, and no fancy tax prep footwork, such a tax would be fairer, ensuring that everyone pays the same percentage of their income. The rich, because they make more, would pay more, but the percentage of their income going to taxes wouldn’t be greater than the percentage paid by those with lower incomes.

The problem with the flat tax, argue opponents, is that such a tax is “unfair” to those with lower incomes. Sure, everyone’s income is taxed the same. But consider this: Someone making $1 million would pay $150,000 with a 15% flat tax, leaving $850,000 behind. On the other hand, someone making $45,000 a year would pay $6,750 in taxes, leaving $38,250 to meet other obligations. The argument is that someone with $1 million is less inconvenienced by $150,000 in taxes than someone of less means would be by paying $6,750 in taxes. Indeed, proponents of the progressive tax system point out that someone making $1 million and paying 40% in taxes ($400,000) is less inconvenienced by paying those higher taxes than the person in the 15% tax bracket — and still has $600,000 to boot.

In the end, how you feel about the tax system boils down to your own opinion about the duty of the rich, whether the rich should be forced into doing that duty, and what constitutes “fair”.

What do you think? Is it fair for the rich to pay more in taxes as they do in our progressive system? Or would it be fairer to switch to another system of taxation?

11 Responses to Should the Rich Pay More in Taxes?

  1. The “less inconvenienced” term is really about the marginal utility of the dollar earned. All people are treated equally, each additional dollar isn’t. The first $15k is equally important to the rich and the poor. We all take care of the most basic obligations with those dollars. The next $25K allow us to take care of additional obligations and to save, etc. So the $1Mth dollar that someone earns has less marginal utility than the $5kth. Therefore it’s easier to part with.

  2. The rich should give back everything they stole from the poor. Capitalism is a system that steals value from where it rightfully belongs: the workers. If the rich don’t want to give back what does not belong to them, then we need to take it back by force. The people must unite, or else they will be divided up and conquered by the elite. The gap between the rich and poor is growing by the day and if we don’t do something soon, the entire country will be in poverty.

    (tongue in cheek :P)

    • On a more serious note, I am for less redistribution. Modern democracy is basically about everyone stealing from everyone else, and everyone suffers as a result. It benefits special interests at the expense of everyone at large, and eventually you get so many of these that everyone is dragged down.

      As far as taxes go, I think that they should be replaced by private fees for everyone except the very poor. I can accept a minimum level of redistribution to keep people from starving and dying (though I think charities would do fine here — if a society is wealthy, it can afford to keep people from starving or dying whether there are taxes or no), and I support a minimum level of spending for defense against external aggression. Beyond that is just pure fat. It would be painful to get rid of it now, but the fat is clogging our arteries and it must be trimmed if we are to return to a healthier state.

      • @Invest It Wisely, if I read this correctly, you are saying that if someone calls 911 or enrolls a child in a public school or similar, they should pay for the cost to service them. That way all government services are paid for by only the people that use them. Unnecessary services will therefore have no revenues to support them and will die out (trimming the fat). This will also eliminate the tax code, get rid of tax accountants, tax attorneys and other support machinery and possibly re-channel them into more productive (for the society as a whole) and creative fields.

        Not saying I agree or disagree with this yet. This is a new idea for me so will need to think it over. Just wanted to confirm that I understand.

        • 911 would be and is fine as a public service in areas where municipalities are not hegemonic. I think that argument breaks down in places such as LA, NY, etc… so the solution there is to break up the municipality hegemon. It can be done for different services if not for everything.

          However, were you to talk about education, no, I don’t believe there should be such a thing as public education. If someone really can’t afford it, then the most that should be done is basic literacy, math, and other skills needed to survive, not a 12 year 40 hour a week regimen! Experience and *real* education is what matters in the real world, and what you learn of that in the K-12 system could be compressed into half the time, maybe even less, if the system were actually competitive and geared toward benefiting the kids rather than benefiting the system.

          The greatest benefits though can be realized by eliminating the tax code. Employing tens of thousands of people to do nothing more than figure out how to move numbers from one place to another does nothing but destroy wealth. People need security in order to produce wealth; they don’t need a ball and chains attached to their legs.

          • While I definitely think plenty of fat needs to be trimmed, I imagine that what I consider basic necessities/rights for people in a society as wealthy as ours encompasses more than yours. I think your point about education is quite interesting, especially since you think the basics are all that are required for those who are too poor to afford to pay for a better education. Does this mean that being born poor means that you don’t “deserve” access to anything that will do little beyond fit you to be another cog in a machine owned by someone fortunate enough to afford a better education? While there are things that need to be improved about our public school system, and I think that the overemphasis on college prep is too bad, I don’t think it’s right to codify deliberate penalties for children by providing them with a sub-standard education, in comparison with their more well-off peers, just because they are poor.

      • It’s easy to make fun of typical rants of uber-socialists of the worker’s party. But that doesn’t change the fact that rich people are rich partly because of the infrastructure of society and the effort of very many other people. Money isn’t simply wealth, it’s social power. And the ones at the top are very good at using that power to keep it. Fair enough to say that rich people didn’t steal every penny they have. But the leverage afforded the very rich by simply having more property makes it easy for them to manipulate labor markets, product markets, government policies, laws, and, in general, many other people; indeed, they study these things to maximize the fruits of their greed, as Adam Smith observed hundreds of years ago. (Do you think they should teach THAT in public schools? That’d be the day.) I’d argue that a democratic society cannot survive without higher taxes on the rich; this notion that somehow asking more taxes from someone who “earned” millions of dollars in one year is a form of theft is ludicrous. That person had a personal army, of sorts, that went and earned it for them; without controls, they tend to build that army to be as large and impenetrable as possible until all dissent is squelched. And that person is the one who benefits the most from property law and “defense against external agression.” Invaders tend to loot without regard to contract or deed, and thieves tend to grab the biggest prizes. Not that stealing or invading is a good thing – but how about spending more money on helping the poor? As a society, we spawn the poor and their poverty at increasing rates, yet the rich are getting richer than ever. In this context, how can we condone reducing the tax burden on the rich, hoping for charities to pick up the slack for the others?

  3. “Sure, the rich have a duty to help the less fortunate. But it should be something they choose to do”

    Then it’s not a duty.

    Miranda, you’re missing one of the huge components of any flat-tax proposal. Any workable “flat” tax has to have two components: a rate, and a standard deduction. You can’t have one without the other.

    No practicable flat tax would really charge everyone 15%. There’d be a standard deduction of, say, $25,000, the argument being that you to need to keep that much to survive.
    Under such a scheme, someone making $100,000 would pay $11,250. Someone making $25,001 would pay 15¢.

    • Miranda,

      I believe that you completely misunderstood my last point. As far as education for anyone, I don’t believe that we need as much time as we currently spend in K-12. Real world experience is much more practical. This has nothing to do with whether you are rich or poor.

      Furthermore, as far as penalties go, I believe you are describing the system as it currently works today. Only the rich have enough wealth to truly bypass it completely. You either benefit or get a penalty based on where you live. I think it’s a lot harder to buy a house to get out of an area with crummy services than it is to save and spend some money if you have the ability to choose. I propose that there be less penalties and regulations, not more. You don’t think that costs would be lower if there was more competition and more choice? 🙂

      PS, I grew up in a poor household and am by no means rich. Not that this affects the discussion at all, but I can speak from personal experience. If you want to trim fat and improve the lives of the poor and middle class, then education is one of the best places to start.

  4. Miranda,

    I don’t think the “rich” have an obligation to pay a higher percentage than anyone else. I am definitely for a flat tax with a standard deduction to give those in poverty a break. I also agree with Kevin that most of our government spending, including public education, is wasted! One thing we have to consider is that if there are less taxes being paid, the cost of living in all areas will drop. That has to be considered when we speak of the impact cutting redistribution programs will have on the poor.

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