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?