Argument: Progressive taxation makes all citizens sacrifice equally
John Stuart Mill wrote in 1848: "As a government out to make no distinction of persons or classes in the strengths of their claims on it, whatever sacrifices it requires from them should be made to bear as nearly as possible with the same pressure upon all...equality of taxation, therefore, as a maxim of politics, means equality of sacrifice."
"Progressive Taxation". Lolife. 25 June 2004 - "There are two main reasons, in my opinion, why the progressive tax is justifiable given the seeming logic of the flat tax:
[...]2. It puts a larger percentage of the tax burden on those people who can most afford it. The richer you are the less your lifestyle is impacted by taxes. If you pay 30% of a $20,000 income, you are barely getting by on $14k/yr. If you pay 40% on $100,000 you still have a comfortable $60k/yr to live on. So you make 5 times as much as the other guy but live on 4 times as the other guy. That doesn’t sound so bad to me."
The Beautiful Heresy- Christian Universalism. "Progressive Taxation - Socialism?". 15 Oct. 2008 - people have been throwing statistics at me showing how the very tippy top percentage of people pay a huge share of the income taxes. Oh, poor rich people. Excuse me while I grab a tissue. I'm being told that they're paying way more than their share. Let me show you how looking at statistics too simplistically gives you an extremely false picture of what is going on and what is fair. I'm going to make some very broad assumptions here and do some rounding just to make a point and keep the numbers simple. The average CEO now makes about 400 times what a production worker in his company makes. He actually makes in a day about what one of his workers makes in a year. Let's assume we have a land where all the companies are made up of one CEO and 399 worker bees. Let's call it Fairtaxland. The worker bees make $40,000 a year. That means the CEO is pulling down $16,000,000 a year. Because we want to be fair, in Fairtaxland we have a flat income tax. Everybody pays 10% of their gross. No deductions. No loopholes. Just what did you make? Send Uncle Sam 10%. So, the worker bees each shell out $4,000 a year. And, the poor CEO has to pay out $1,600,000/year. The CEOs in our land represent just 0.25% of the population. But, of the total revenue collected from each company, the lone CEO pays $1,600,000 while the rest of the workers (99.75% of the population) pay $1,596,000. In this illustration, 0.25% of the population pays 50% of the taxes. If you read this headline "In Fairtaxland, 0.25% of the population pays 50% of the taxes" would you be outraged? As I said, this is a simplistic example. In America, we have people making hundreds of millions and even billions of dollars a year. Oprah Winfrey makes more in an hour than the average workers makes in a year. Bill Gates and Warren Buffet make more than a lot of countries. Of course, they are going to pay a huge percentage of the income tax revenue because they're making gobs and gobs of money. G-d bless America!
Let's take the illustration just a little further. The worker bees making $40,000 have to spend (let's make a number up) $24,000 just to pay for basic needs. Food, shelter, clothing, health care, etc. That leaves them with $16,000 in "disposable income". The $4,000 they pay in income tax represents 25% of their income not dedicated to basic living expenses. Let' s allow the CEO twenty times their non-discretionary spending. We'll give him $480,000 in basic living expenses. That leaves him with $15,520,000 of disposable income. His tax burden of $1,600,000 is roughly 10% of his "disposable" income. Again, that's allowing him twenty times the living expenses of his average worker or 12 times their total gross annual income. So, as a percentage of their disposable incomes, the worker bees are paying at a rate 2.5X what the CEO is paying. [Disclaimer again- I'm not claiming these numbers are accurate and taxes are not optional. So, they really should be included in basic living expenses. I'm trying to keep this simple] I'm simply trying to illustrate why you can't just look at some of the stats people throw at you and feel sorry for rich people and their tax "burden". That guy making $16,000,000 a year is not going to even notice an additional $4,000 or $8,000 or $12,000 of his income. Money that would make up the entire tax burden of several of his employees.
What I have just shown above is first of all that you have to understand statistics before you start falling for dramatic numbers like X% of the American public already pays Y% of the tax revenue. They should! Some of them are making ungodly amounts of money. Even in our imaginary Fairtaxland, without a progressive tax rate, if you make 400X more money than the Average Joe, you're going to pay a bigger percentage of the tax burden. Just one quarter of one percent of the population pays 50% of the taxes. What I attempted to illustrate in the paragraph about discretionary spending and living expenses is the reasoning behind progressive taxation. It's more "fair". If someone is making more than he can possibly spend in a year (or a lifetime), it's reasonable to expect him to pay a little more in taxes.
Tapan Mitraa and Efe A. Okb. "On the Equitability of Progressive Taxation". Academic Press. 1996 - Abstract[...]: We propose the principle of equal sacrifice to determine the class of “vertically inequitable” progressive taxes. A necessary condition for an income tax function to be equal sacrifice is formulated, and hence, a subclass of progressive taxes which cannot inflict the same sacrifice upon all individuals relative toanystrictly increasing and concave utility function is determined. Conversely, it is shown in a general framework that any convex (thus progressive) tax function satisfies the principle of equal sacrifice. Our findings point to the fact that equal sacrifice under progressive income taxation depends heavily upon the degree of marginal rate (as opposed to average rate) progressivity.Journal of Economic LiteratureClassification Numbers: D63, H20.
Megan McArdle, from The Atlantic - "the bulk of our income tax burden falls on those who will miss the money the least."