Economics - Progressive Income Tax

1. Jun 6, 2005

student007

I'm preparing a debate in economics regarding taxes, and was told to examine progressive income tax. I'm yet to find out what side I am debating, so i am listing and trying to understand some points for and against it. All i have is one point against it - PITs are unfair in that people who work hard to acheive wealth are essentially penalized for their hard-earned wealth. I'm struggling to find anything in favour of PITs. Can anyone help me out?

2. Jun 6, 2005

Pengwuino

Simple, although its not fair (although other people have different definitions as to what fair is... and its rather hard because if you could ever somehow graph pay vs. difficulty of certain jobs, itd be all over the place), if you leveled out the income taxes into a flat % system, the % of, for say the US government's revenue "needs", would be at least 50% of your income probably. It would be even more difficult for the lower incomes to make it ahead as well. You put the burden on the rich so that the lower incomes can live better lives. In my opinion, its not fair... but it results in a happier population overall.

A regressive system just sucks... the whole concept is absurd in the real world.

I dont think its right to get into what a flat tax would be like ( its a flat tax on every thing you buy instead of everything you earn) because that wont help your argument either way.

I cant wait for the ideologs to come in here nad start turning this into a Bush this Bush that thread...

3. Jun 7, 2005

Staff Emeritus
To me what sucks is that a little over 1% of the people in the US own nearly half the assets. I happily paid my share of the regression all the years I was making good money, and now that I am collecting benefits the younger generation is all about "fairness", meaning "I got mine, too bad about you."

4. Jun 7, 2005

Staff: Mentor

You sure you didn't accidentally just flip progressive and regressive...?

student007, one thing to consider about progressive vs regressive taxes is the influence of welfare and other social programs. The argument can be made that such things give the poor a negative tax rate and that a "flat" tax would require removing all social programs to truly be flat. For that reason alone, it is generally accepted that taxes need to be progressive unless we are to choose to let the truly in need fend for themselves.

After that, the theory is that when you are poor, more of your income goes to needs and when you are rich, more of it goes to wants. The way the theory goes is that needs shouldn't be taxed as much as wants. But then you have to decide how you want to define "fair" in that context.

Basically though, if you are to be pro pro, emphasize the plight of the poor and define "fair" in a socialist sense (fair means everyone is provided for who needs it). If you are pro re (or flat - like Penguino said, virtually no-one favors a regressive system), emphasize the "fairness" of an equal rate for everyone (would could be more fair than equality?).

The loophole in the flat tax is the welfare issue - depending on what side you are on, you can subtract welfare from taxes paid, or not.

Last edited: Jun 7, 2005
5. Jun 7, 2005

Pengwuino

I think you got regressive and progressive taxes mixed up. You must also realize that since corporations are considered a part of the population, it is no wonder why that is true (and probably true in most other nations). An overwhelming % of people have no idea how to invest their money wisely or spend it wisely whilea corporations sole purpose is to invest wisely and spend wisely. However, that statistic sounds rather bloated... would like to see a source on it. Of all the "top 1%" rhetoric for this and that, ive yet to see such an overwhelming statistic to be validated (however ive also never seen such a statistic elsewhere)

6. Jun 7, 2005

student007

Cool. But what theory is it that says that whole thing about wants and needs? Did someone come up with it, or is it just a generally accepted theory? Anyways, here are all of the benefits i have for a progressive tax system:

1)Allows for greater tax revenue for the government.
2)Allows low-income families to keep a greater percentage of their income than high-income families.
3) Encourages equity (lowers the wealth distribution gap)
4) Lower taxes actually decreases purchasing power as it increases consumer spending and therefore inflation. (higher PITs are not harmful).
5) Marginal PITs ensure that those who make larger pre-tax incomes have larger post-tax incomes relative to those with other incomes.
6) Prices will drop to levels that taxpayers can afford if all consumers have their disposable incomes reduced in a way that preserves everyone's relative 'bidding positions’.
7) Theory is that when one is poor, more of their income goes to needs and when one is rich, more of it goes to wants. The way the theory goes is that needs shouldn't be taxed as much as wants. (I used one of your responses for this one!)

Does progressive in any way encourage savings? If so how, and how does this boost the economy.

Also, what about cons, besides this one: "Those who work hard to earn high incomes have to pay for their hard work." I'm short on cons for it.

Last edited: Jun 7, 2005
7. Jun 8, 2005

Kenneth Mann

Personally, I'm less concerned with whether taxes are "progressive" or "regressive", than with what we choose to tax. Rather than trying to use taxes to effect sociological concerns (of doubtful value at best) I'd like to see it used for economic concerns. Remember, we suppress that part of the economy that we tax, and we increase that which we subsidize. Thus, if we tax production and subsidize consumption, we suppress production and increase consumption (sound familiar?). A simple economic exercise can be constructed to show that in industrial nation that predominantly taxes production (income) is subsidizing other industrial nations that predominantly tax consumption (sales, excise and Value-Added [in truth Value-Subtracted] taxes).

The objection we always hear from those who object to consumption taxes is that "It would penalize the poor," but this is pure nonsense. Consumption taxes can be graduated just as easily as can production taxes; in fact they can be graduated on two levels. They can be graduated according to how essential the products or services being sold are, and they can be graduated according to the "snob appeal" value of the item within its class category. Thus, we can tax clothing (maybe 10%) at a higher rate, for example than food (maybe 0%), and cars (maybe 20%) at a higher rate than clothing, and jewelry (maybe 40%) at a higher rate than cars. On the other hand, within a category, say cars, we can tax say Mercedes (maybe 30%) at a higher rate than Dodge (20% ??), etc., because its selling price within class is proportionately higher. (That actually gives snob items more snob appeal.)

If a government wants to tax, I say let it do so, and if it wants it to be either progressive or regressive, I won't object, but I say don't punish your own people (either poor or rich) when you do it.

KM

8. Jun 10, 2005

Let's get it right.
Taxation is the cost of government. To whom does government serve and to what degree? Those who are rich are served the most by the government and should pay the most for it. The reason there's any debate at all on this subject is because capitalist exploiters use "externalities" to get others to pay for their means to procure profits. Those "externalities" are costs to doing business and gaining profits that the capitalist doesn't pay for. For one example of hundreds of others who pay for the fortunes of others through the scheme of capitalism - Our war dead paid for it. Yet how many of their wives and children benefit from their supreme sacrifice and how many of those who've never known combat or the threat of combat have capitalized and realized billions of dollars more than they'll ever need on just the sacrifices of these nobles?
At that's not to mention the millions of other public servants who endure a living death of existence and sacrifice to maintain the environment - government workers (slaves) who love their country, states, communities and people - and give their lives.
Progressive vs regressive tax structure? Progressive only. And we need a lot of other tax, fine and fee reform until we get true and real justice. Those who benefit should pay proportionately. Those who suffer through no fault of their own should be relieved and assisted. Since Reagan and Prop 13 we have not known civilization, but anarchy. Damn the so-called "right". The entire position is completely and disgustingly selfish, cruel, uncivilized and unworthy of modern humanity.

Peace and love,
NN

9. Jun 10, 2005

Pengwuino

Thats Karl Marx's famous quote... "To his based on his needs, to each according ot his ability" or something along those lines. Its not really a theory... its more of a wish or social commentary-based wish.

Thats not true. Any of the tax systems suggested here could result in the same amount of tax revenue. Progressive is the one that pisses the fewest people off however.

True but you'll get chewed out for saying it

One thing to wonder though is that whats a want and whats a need? This also doesnt seem to corrolate with income tax pro/regression. There are excise taxes however which taxes things many consider "immoral wants" (but this has been expanded too... gas???)

No, it does not. A flat sales tax does however. That is where you are taxed at the time of purchase of goods. Since you only get taxed when you spend, you are inclined to save money. When you have income taxes however by %, this does not apply.

Your going to get flamed for this lol. Some people think since they have more money, its their responsibility to give if away.

"Lets get it right" and everything you say afterwords is in contradiction. Most of the money used by the government goes to support the poor be it through health care or welfare.

http://a255.g.akamaitech.net/7/255/...ess.gov/usbudget/fy06/pdf/budget/overview.pdf is a nice overview

http://www.whitehouse.gov/omb/budget/fy2002/guide02.html#Spending is a ... pie chart :D Who doesnt love pie...

Last edited: Jun 10, 2005
10. Jun 10, 2005

loseyourname

Staff Emeritus
I found this table at www.inequality.org:

http://www.faireconomy.org/images/image008.jpg

According to this, wealth in the US is distributed as such:

The top 1% own 33%
Next 4% own 26%
Next 5% own 12%
Next 10% own 13%
Next 20% own 11%
Next 20% own 4%
Next 22% own 0.3%
Bottom 18% have zero or negative net worth

Interestingly enough, the actual abstract of the paper that this data is sourced from says this:

• I find that despite slow growth in income over the 1990s, there have been marked improvements in the wealth position of average families. Both mean and median wealth grew briskly in the late 1990s. The inequality of net worth leveled off even though income inequality continued to rise over this period. Indebtedness also fell substantially during the late 1990s.

http://www.levy.org/default.asp?view=publications_view&pubID=fca3a440ee

Apparently things got better for everyone. Although their income didn't rise much, the worth of their assets (in particular, home equity) appreciated appreciably. Inequality.org doesn't seem to see anything positive in this information, however. Although wealth disparity didn't increase much over this period, income disparity did. So basically, people that weren't homeowners or property owners in general don't benefit nearly as much when the economy grows here in the US. Moral of the story: be a property owner. At the very least, own your own house.

11. Jun 10, 2005

Pengwuino

haha property owner... be one only if a 30 year mortage's payment is in a comfortable range. My mother is noticing a looooooooot of people, many lower-income, buying houses they just cannot afford and a lot of them are coming back up on forclosure soon after.

12. Jun 10, 2005

Hey Pen,
Yes, I see it too. Horrible cost for basic shelter. Those who own will be damned before they lose a dime of investment or possible profit on their property. Property as an investment? What's that say or indicate about the current resource distribution system? What does our system benefit or reward? Nothing of value that I can see. OHHH NNOOOOOO!

Peace and love,
NN

13. Jun 10, 2005

No... thats not what the problem is... Problem in California at least is two fold. High housing prices are one. Two, the more serious problem, is that there seeing people with $40,000 salaries wanting 2500 sq ft 2 story houses on 1/2 an acre. Its like walking into the twilight zone, people all of a sudden dont care how much anything costs. As for basic shelter, around here at least, rents havent really budged during this housing market boom so "shelter" is very easy to come by. And you know what that tells me? property as investment? that tells me that the only reason some people have a house over their head is because someone put it there. Someone makes a profit, someone has a roof over there head, win win, capitalist systems greatest concept. Our system rewards those who work hard and use their money wisely. And what in gods name does your posts have to do with our income taxes. 14. Jun 11, 2005 NEBRASKA NATURALIST Hi Pen, 1) taxation is the cost of government 2) government allows anything and everything happening here now 3) some persons benefit from this environment more than others 4) some persons benefit from this environment through no effort nor fault of their own 5) progressive taxation takes #3 and #4 into account 6) regressive and/or any other taxation ignores or downplays #3 and #4 Understand? 15. Jun 11, 2005 Pengwuino You say now "some people" benefit from it but originally you said only the rich benefit from it. Please justify how the rich benefit the most. 16. Jun 11, 2005 loseyourname Staff Emeritus It's not the fault of property owners. It's the fault of the people buying the property. The price of a house increases because demand increases. The owner just charges what someone is willing to pay. You can't really blame the supply side, either. Housing developers build like mad all the way out into the far-off boondocks here in California. But people prefer to live in certain areas that are already developed, and they'll pay more to do so. Think of it as an auction. Property goes to the highest bidder. If someone that can't afford to pay that much loses out, are you really going to blame the seller? Can you honestly tell me that you would willingly sell your house to person X for$250,000 when person Y is willing to pay \$300,000? Unless person X is a family member or someone you owe a huge favor to, why would you?

17. Jun 11, 2005

Hi Pen,
Thanks for your attention. You responded in seconds. Well done.
I think here, "the rich" simply have a set of characteristics that are not universal nor particularly good. For example, if our government enacts a series of laws that arbitrarily value tennis players or plumbers or surfers - we would see that those who are naturally good at these things prosper, thrive and come to power. But pity the poor tennis player, non-plumber and person who cannot surf for a variety of reasons.
"Freedom and justice for all." is my point and message here. I believe that financial success is as arbitrary and non-universal as mastering tennis or plumbing or surfing. These pursuits, though worthy, aren't universal, yet all must meet their daily needs and that's the bottom line of a good economic resource distribution system.
It's really a privilege and pleasure to discuss these things with you. I enjoy this opportunity greatly.

Peace and love,
NN

18. Jun 11, 2005

Hi Pen,
Thanks for your quick reply. I'll try to be as brief and simple as possible.
1) financial success is as arbitrary a choice to value as playing tennis or plumbing or surfing.
2) by law, our society is only valuing persons who have the natural or nurtured ability to be financial successes - all else pale in comparison of access to resources.
3) ". . .freedom and justice for ALL". is the contract, beauty and specialness of America.
4) by contract law, my life should be as good as #2, yet the result is woefully different through no fault or misconduct of my own.
5) taxation, the cost of government, should be based on who benefits the most or least from government as it is designed. You benefit more from the way things are, (that government determines) you pay more of the cost maintain the upkeep of that government. That's a completely progressive tax structure. It indicates also that everything else should be priced and structured similarly - you make more, you pay more. Remember - "freedom and justice for all", bottom line basis for everything government's about and doing. Dig? We agree. I saw your previous posts.

Peace and love,
NN

PS See ya after the revolution. We've a lot of work to do together.

19. Jun 11, 2005

Hi Pen,
I'm trying to stay on topic. Please bear with me. Taxation is the subject - who pays, when, where, why and how much is the subject.
Democracy is the unique thing that distinguishes America, American govenment and what this country is known and famous for. Capitalism, however, is different from democracy and not implied in America or freedom or justice or any of the good things America is known for. Capitalism is only a resource acquisition and distibution system.
Democracy and capitalism have been purposfully merged to allow freedom fighters and lovers to promote capitalism as well. Capitalism alone is not attractive EXCEPT to persons who are good at it or who percieve their best interests in maintaining it - but that is only a relatively small minority of people - the rich - or those who want to be "rich". We can't all be rich, for a variety of reasons, therefore to maintain the system means that some, (and even a vast majority of) citizens will be denied due resources and power, among other things. That condition existing alone means that capitalism is unacceptable as an economic distribution system.
Laws that benefit capitalists do so at the expense of non-capitalists and inept capitalists. These are the laws I mention that are wrong for America and justice- and freedom-loving persons.
Understand?

20. Jun 12, 2005