(We’ve not being posting lately! don’t worry it’s just the end of the semester and we are swamped/exhausted our regular posting seclude will be back as soon as possible)
While this will not be growing into a series on our blog I have a few more opinions and ideas about taxation and what a fair society look like that I would like to share.
People will often cry unfair when they first learn about progressive taxing, suggesting flat taxes are more fair. On the face of thing this would seem patently true. Everyone has to pay the same amount in taxes proportional to their earning so that must be the fairest option. Right? Well here I’ll be arguing against this simple but common idea and explain why raising taxes on the richest of us impact them less then it does the when we raise taxes on poorest, and how the rich tend to reap more benefits from society than those with out as much capital.
So why does raising taxes affect the rich less severely than the poor?
To help me explain why first I’ll draw upon the reasons why I think flat taxes are not in fact as fair as they seem. Lets assume we have a flat tax of 10% like we have here in Alberta. Lets also introduce you to three people. Person A, B and C. Person A makes $10’000 a year, B Makes 100’000, and C makes 1’000’000. Because of the flat tax that means they each are actually earning 9’000, 90’000 and 900’000 a year after taxes. Of these three people who is most likely going to see a quality of life change due to paying 10% of there income. The point is 10% affect the lowest incomes far more then the highest incomes. 1000 means lot when all you have in 9000 dollars to work with, but 10’000 when you still have 90’000? That jump in pay is much easier to swallow.
People do not proportionally increase spending in line with their income. Humans can only consume so much, and after meeting you basic needs, then your desires for luxury goods, you can and generally will only spend so much on other things. This along with the fact most people who have become wealthy do not actively try to impoverish themselves it’s unavoidable that the wealthy are going to have a considerable amount of free capital with which they can use for any variety of purposes including increasing their own personal wealth. Where the poorer you are the more of you income will be spent on basic needs and luxury consumption with very little left to save or invest. As well those stats provided by NPR above, which classes the rich as anyone making over $150’000 a year. I suspect you can further break the rich into further brackets and while I lack numbers I wouldn’t be surprised to find the proportions of consumption in the extremely rich continue a downward trend while saving and investments go up disproportionately when compared to other groups.
This is also a part of why sales taxes hit the middle class harder. Why because they are the largest consumers by far have a good deal of disposable income. Even if the middle class consumes a sixth that the rich do per person the middle class out number the rich by far more then that, so a sale tax is going to generally be a burden on the largest consumers base ie. the middle class.
I’m not saying that saving, or having lots of money makes people bad, that not the issue here. The issue is that flat taxes, particularly sales taxes, tax the poor and middle class hardest, and if the poor have government supplements then most or all of that burden then gets shuffled to the middle class, while the rich who consume proportionally less and put those savings to work allowing them to make even more money.
The rich are best able to avoid the rat race and to avoid expenses out pacing income, hence this is part why I think it’s perfectly fair to expect that they put more back. They can avoid over spending easier. They have more time and resources, so raising taxes on the rich isn’t likely going to affect their quality of life. Though even if it does affect quality of life it’s effects are generally going to be miniscule so long as the tax rate are completely outrageous (though even if they are outrageous it’s not like it’s going to knock the rich into poverty if the change is gradual).
That said I can understand how that will sound unfair to some, so here’s why I think the rich benefit more from society and as such ought to pay more into the systems they derive their income.
Most of the things which we take for granted in the west are largely impossible, or would lack the inter connectivity and resilience with out a government. Gas, electricity, internet, water, roads, mail… To work efficiently and to reach many people you need society working together pooling resources to make everything consistent. That stability helps further stabilize and make it easier and easier keep thing in order, people expect it and people will put up with a great deal to maintain these convinces. Why? Because one we use to them and are adverse to change, but two because these systems benefit us. Though we don’t all benefit equally. Sure we all benefit from roads and the goods, but business and industry owners personally benefit considerably more. The same with the internet, electronic banking in general. These thing benefit us all as well. The speedy and safe exchange of funds makes life much simpler and remove a great deal of stress, but the average person does not draw much further benefit from these system other then, mostly government run, retirement and saving plans. Even then there tends to be far more restrictions on these plans and if done wrong which is not a rare event can cost the person more money then if they had just put the money in the bank. The wealthy on the other hand tend to have the resources and time to properly take advantage of existing systems (and influence politics in order to change those systems). This isn’t because they are over all smarter, it’s just they are in the know and are better able to hire others to do the work for them, or take the time away from their career necessary to get these tasks done.
I’m not willing to say that the rich benefiting more is a bad thing, but I don’t think you can make a compelling argument that the rich do not benefit more by these system and institutions. Though this increase benefit along with the simple fact that the wealthy can afford to pay more without it harming the quality of their lives form most the foundation for why I think they ought to pay more. It won’t hurt ’em and they get more out of anyway, but there is one other thing which I hold to be true. This final point is that it’s in our interest to improve the lives of those around us.
Consumption, innovation, progress. These thing are not things only done, or even primarily done, by the rich. Innovation and progress are pushed by human struggle, and consumption requiers a consumer base with enough income to support a consumer economy. As such you can not have a modern economy without a healthy middle class, and innovation often comes from the middle class in the form of researchers and engineers, who typically are in turn funded by the government in one way or another either directly through grants, or indirectly though education funding. Not to mention society is a much nicer place with a highly educated citizenry. Disease is reduced, violence goes down.
Healthy educated citizens make society safer and more efficient for everyone. They increase the overall healthy and productivity of society in a way a few extremely well off upper class could never do. Such a population is better able to rise to the challenges presented by the unknown and are often more resilient to disaster. The best way of doing these things as far as my experience can attest is universal education and healthcare of some manner, and you need taxes for that. And for the reasons presented before the wealthy are in the best position to give back more to society.
To briefly recap I think the rich ought to pay more for three primary reasons. First because increasing taxes on the rich, particularly the mega rich, affects them the least. Second because the rich benefit more from the majority of social structures like the legal system and even including the basic infrastructure that ties people together. Third because it is in everyone’s best interest to improve the lives of those around them as doing so will over all improve there lives.
By no means is this a complete look into why I think these things, but that is the basic premise.