Wednesday, June 17, 2009

In Defense of Liberalism: Progressive Taxation

***Every week, I will post a segment called "In Defense of Liberalism." I will look at several topics that usually get a bad reputation, as being too "liberal" -- the way conservatives use the word as synonymous as "bad." I will instead show how the topic is good for America, and how liberalism overall is a good thing.***

Progressive Taxation
Nobody likes paying taxes. That's why the IRS and taxes in general typically receive a bad reputation in our country.

But at the same time, few would argue that a system that gets rid of taxes completely would work out. We need taxes, not only for social welfare programs but also for infrastructure, defense and other items essential to the survival of our nation.

How we derive these funds, then, becomes the central debate. Traditionally, conservatives have preferred a "flat" tax, or one that taxes everyone at the same rate; in some conservative circles, they have also advocated a national sales tax to replace the entirety of income taxes.

But such taxes sometimes do more harm than good. Sales taxes, for example, shift the burden of taxation to the poor, who pay a higher rate on taxes than the rich would. Consider the following scenario...

Say two persons, Person A and Person B, are both buying new cars. Person A has an income of $30,000 a year, and Person B has one of $300,000. Let's assume there's a national sales tax of 20 percent (very close to what some conservatives are advocating).

Person A has found a car for $8,000, used but in fairly good shape. Their taxes are 8,000 x .20, which equals $1,600. Person B is able to buy a more luxurious car, and purchases one at $30,000. Their taxes, then, are 30,000 x .20, equaling $6,000.

Even though Person B is paying more than three times as much in taxes overall, Person B is paying less than Person A in taxes as a percent of their income. Person A is paying $1,600 in taxes from $30,000 in income; that equals 5.33 percent of their paychecks. Person B, meanwhile, pays $6,000 of their income from $300,000 of their income; only 2 percent of their income.

Proponents of the sales tax plan cite the fact that the rich buy more expensive items, and therefore shrink the "tax-gap." Buy my example clearly shows that isn't the case; even when buying more expensive items, Person B ended up paying less in taxes than Person A.

When it comes to a flat income tax, however, we're faced with a problem of practicality rather than equality. If we're going to tax everyone equally, then it means the rich and the poor have the same tax rate.

But this creates problems. We'd like to fund many programs to help the people of America -- ranging from health care projects to building interstate highways, and providing a proper defense of our nation. But to do so, we have to be able to generate enough revenue to pay for it.

Thus, we'd like to be able to tax quite a bit from the rich; but doing so comes at the expense of the poor, who would not be able to afford such a tax burden. Taxing the poor at a low rate, however, means that we also would tax the rich at such a rate, creating a potential bankruptcy of our nation's economy.

It makes much more sense, then, to tax the rich at a higher rate than the poor, and to create tiers between the two to tax different income levels as people are more able to pay. Through a progressive model of taxation, the rich are taxed at a level that still allows them to live a fairly luxurious lifestyle while the poor are taxed at a low enough level to allow them to survive. The government, in turn, benefits because it receives the proper funds necessary to run programs, pave roads, pay civil employees, and defend our borders.

Critics of progressive taxation contend that it's socialism in disguise, with extreme critics sounding the alarms of communism. To some extent, they're right, but only in the sense that any form of taxation deviates from true capitalism, into a sort of capitalist-socialist hybrid. What matters is whether capitalism remains preserved, for the most part. This system of taxation, after all, DEPENDS upon the power of capitalism in order to function; destroying that form of economics would have no benefits towards utilizing its gains.

The debate may wage on over how much taxes the rich should pay, but this fact remains: a progressive model of taxation is the only good model available to us at the moment, even if it isn't the most "fairest." All other forms of taxation unfairly hurt the poor (either directly by taxing them more, or indirectly by gutting government assistance programs). And while a progressive tax may seem unfair to those with higher wages, it doesn't do any irrevocable harm, causes no lifestyle changes, to those paying more.

No comments:

Post a Comment