azimuth - 2/7/2005 9:31 PM
How would a calculated on a percentage of income over and above the poverty level be unfair?
You just described progressive taxation. Suppose the cutoff is $30,000 per year, and we tax everyone at 25% of the rest.
At $30,000, your tax rate is 0%.
At $50,000, your tax is (50,000-$30,000)*25% = $5000 or 10% of total income.
At $100,000, your tax is ($100,000-$30,000)*25% = $17,500 or 17.5% of total income.
Notice that the rate is increasing as income increases. Your fair system is progressive, and the progressive system came about to introduce a tax break for low income earners. It's "unfair" to high income earners.
There are many reasons for progressive taxation, including allowing the lowest income earners a break since they spend nearly 100% of their income anyway. It all goes into the economy. Higher income earners have a very high savings rate, and pure flat taxes ignore the loss of economic stimulation thanks to the loss of money flowing into the economy. Sure, they do invest in equities, but not it's not a replacement for the loss of economic input. Therefore, the gov't takes a higher percentage to ensure that a great deal of the money is not lost. The reason that the small numerical number of income earners paid so much tax is that a small numerical number of earners made a huge portion of the money and hold a huge proportion of the wealth.
One of the principles of American long term thinking was to avoid a huge centralization of wealth into a small group of individuals. They saw it take place in the UK and thought that it was taking away opportunity from the poor to rise to higher status. Wealth would concentrate over the long term. Estate takes are the policy that attempts to stop that long term concentration, but their true ability is a long standing economic debate.
Why do the poor oppose estate taxes and vote for Bush and pump for flat taxes? Because they think someday that they'll be rich. How many people REALLY come out poverty and become rich? I know it's the "American Dream" but how real is it? Sure, there are lots of rap artists, but as a percentage of the people in the nation, is it significant? Why should we institute policy that only benefits a tiny minority of people based on economic status? These are the same people that fight against minority rights for minority races and hsomosexuals. It's not okay to discriminate on the basis of economic minority, but it is on others? Sheesh.