Progressive taxation.
| Author | Alexander, Ivor |
| Position | Essays - Essay |
Money in large amounts will tend to propagate exponentially. In the absence of the countervailing force provided by progressive taxation, some will enjoy wealth very far above average while others will find themselves hampered or perhaps even trapped in poverty. Society is thus divided into those who are fiscally privileged and those who are not. Those who are not may suffer only the mildest repression, or, in the worst of cases, persistent privation. The manifold consequences of such a division are already manifest, and promise to become more serious.
I want to look at some of these consequences and also to argue that things would be better for society in general if taxation were entirely progressive. At the heart of the argument I'll try to show that there are no coherent grounds for non-progressive taxation to begin with. The stress will be on first principles and on the private citizen, though in the latter regard I believe the general argument can be extended to embrace corporate taxation.
The basic case for progression
It is self-evident that from the point of view of society there can be no point in taxing the poor. To tax the poor is to diminish their capacity to function, and, the question of rights and contentment apart, if they cannot function they cannot contribute to the general welfare. If they are inexperienced, taxes imposed on the poor will in some cases mean that it is not cost-effective to hire them. Nor will it be easier for individuals to strike out on their own. A case in point is that of the person whom fixed and sundry taxes prevent from starting a small business. Here the market loses a product, the individual in question loses something of his dignity, society loses something of its cohesion and, ironically, the tax authorities lose the revenue they would later have gained. Most regrettably, at the outset of a century that many hoped would be more enlightened than the last, an opportunity to raise the sum of human happiness has been dismissed.
The citizen who earns enough to live in some comfort may reasonably be expected to contribute a small percentage of income to the state's legitimate expenses. And it may reasonably be argued that the person earning a little more should contribute a slightly higher percentage, since in the absence of a rising percentage the state's revenue will be insufficient. To take the matter one step further, the rate at which the percentage itself increases must decline as income rises, since otherwise a point will be reached at which to earn more means to go home with less in one's pocket. We end up with a smooth curve that rises most steeply at the outset, while to the right it tends, more and more slowly, toward horizontality at 100 per cent. (In the interest of simplicity the curve is here assumed to issue from the origin, i.e. at the point where income is zero. The question of basic exemptions, or, more elegantly, of a complementary welfare curve that falls with rising income, is left out of consideration.) One of the beauties of this curve is its seamless nature. No-one subject to such a system of taxation can claim that their neighbour is fiscally privileged.
The system we know
The curve described above is the one that most people would surely vote for if they were given the opportunity, for one reason because the same majority would benefit financially; but no such opportunity is today granted the electorate. With rare exceptions all members of an administration will help, perhaps actively but more probably through acquiescence, to perpetuate the system we know. The administration to which they belong may raise one tax, reduce another, invent a third, and so on, but behind the gratuitous complexity thus generated the overall curve will remain in large measure non-progressive. Following a budget it will likely be less progressive than before.
The gamut of imposts running counter to the progressive principle will in most countries include taxes that bear no relation to income, such as fixed taxes for the funding of municipal services and for social security. They will also include such purchase taxes as value added tax, the great deprogressifier familiar to everyone in this new, rather sanctimonious Europe. Tolls are in effect another non-progressive tax, a quiet reminder...
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