Debate Rounds (4)
First off, the rich have it better off, we can look at them like a well developed, rich in infrastructure society, like the U.S. Most of the world depends on the U.S for exports because the U.S is so well established. This is how we should view this debate, the poor depend on the better-off, better-established rich class to survive and prosper, therefore we should tax the rich more than the other classes (progressive tax)
Calvin Coolidge, when he was president, knew that progressive tax rates were detrimental to the American economy and that a flatter tax system was the cure to the recession in 1920, when the tax rates were lowered across the board in the years 1921, 1924, and 1926, to a more flat tax code, business in America rebounded, wealth trickled down to the poor and by the end of the 1920s, Americans had higher wages, and had more common items that only ten years before, were viewed as luxuries.
We should not weigh this debate on whether one group benefits from progressive taxation, we should weigh it based on whether all groups benefit from progressive taxation. If weighed in this manner, one should conclude that progressive taxation, on balanced, should be opposed for these reasons:
- Progressive Taxation causes tax evasion
- Progressive Taxation hurts the economy
- Progressive Taxation crush the incentive to work
Progressive taxation does cause tax evasion, as noticed by IRS statistics and by Tax "Justice" Groups, many wealthy individuals bypass the progressive tax through a series of Swiss Bank accounts and Tax havens, the easiest example of this is the progressive taxation during the Wilson presidency (1912 - 1920), in which the progressive tax of 10% on the wealthiest Americans was raised to 77% of all income, along with a small inheritance tax and an excess profits tax. The result of this was not more revenue, in fact, by 1920, the wealthiest Americans, as observed by the IRS, paid 29.9% of all income taxes, the middle America payed 9.1% and the poorest Americans paid 15.4% of all the income taxes. The high burden on the poor is a result of tax evasion, when the progressive tax was instituted, the cost to evade taxes became less than the cost to pay taxes, thus, much of America's economic activity, and its wealthiest citizens ended up going underground, or in the black market, to hide taxable income, even the most vigorous proponents of Progressive taxation were known to use tax shelters, Ted Kennedy, a wealthy politician, was hiding $600 million in taxable income while he was promoting the installation of progressive taxation. Mellon summarizes this trend through his quote: "The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business." When taxes are not paid, the burden moves to the poorer Americans, progressive taxation entails high taxes on the wealthiest Americans, high taxes are evaded.
Secondly, the Progressive tax is an overall burden to the economy, when Herbert Hoover was president, he re installed the highly progressive tax by placing a 66% income tax rate on the wealthiest Americans, the result was the Great Depression. When Woodrow Wilson created a Progressive Tax system, he caused the recession of 1920 and moved American economic activity to the black market. When Progressive Taxation was upheld from Franklin Roosevelt onward, the surplus production of World War II created prosperity from 1950 to 1964, but when the surpluses ran out, the Stagflation of the 1970s hit Americans of all incomes, prices were raised and unemployment and inflation hit double digits. It was Ronald Reagan's flatter tax plan that eliminated all of these problems and ushered in two decades of economic growth, started by Reagan and continued by Bush I and Clinton. When Warren Harding and Calvin Cooldige restored a flatter tax rate, the American economy expanded by 100%, and the wealthiest Americans, even after tax cuts, began to pay 61.3% of all the taxes, while the poor paid 1.1%, according the US Department of Treasury. Progressive taxes hinder American economic growth, when this happens, the poor who are, according to the pro, "dependent on the better off" cannot reap the benefits a "better off" group have, such as job creation and retail purchases which create jobs.
Lastly, Progressive Taxes discourage harder work because they increase the burden of being rich. When a tax is instituted which results in a, for example, 10% penalty for being poor, but a 50% penalty for being rich, more people will see the incentive to be poor because taxes create too much of a burden. Under a progressive tax system, the wealthiest citizens are penalized by a system that confiscates more than half of their wealth, with a system which confiscates a vast percentage of one's wealth for merely being successful, hard work is discouraged, and just as seen with every Progressive tax European state, compared with America, which has a flatter rate, Europe produces less than the United States.
Progressive tax is not a policy for any class of any given country, it promotes tax evasion, it hurts the economy and it discourages hard work, which produces a net loss for all classes, but mostly for the poorest citizens and especially the unemployed citizens.
Social Justice - Some argue that it is morally right that those who can afford to pay more in taxes should do so. Those that have very little income should be helped out by those who can afford to help. A progressive tax allows governments to collect money from those who can afford to pay, and uses it to help create a society that is more happy as a result. Those taxes are used to fund education, medical services, housing assistance and other welfare programs for those people who really need help. Because so many people need help with these things, society is better off as a whole.
More Government Revenue - A progressive system allows governments to collect more money from higher income earners. This results in more money collected, rather than if everyone paid the same percentage. As a result, the government can provide more programs and services that benefit society.
Efficiency. What is the optimal amount of public goods and services the government should provide? If the government creates a rule that says everyone must pay an equal share of their income, revenue will be restricted to the rate that the lowest earning workers can afford to pay.
Consider the case of a married couple with drastically different earnings. One spouse earns $40,000 per year, while the other earns $400,000 a year. If the couple goes Dutch, they will restrict their shared consumption. However, if the couple adopts a rule that the higher earning spouse pays more, then they can enjoy a higher level of shared consumption. This means they will consume a better house, better car, and better lifestyle.
Income Equality is not necessarily a positive, in fact, the most economically equal country in the world (lowest Gini index) happens to be North Korea, other economically unequal countries, like Hong Kong And Singapore and the United States have achieved the greatest levels of prosperity in the world, prices are low, unemployment and inflation remain low and GDP growth is shared among all classes. However, in economically equal countries, productivity and economic activity are contracting, income equality exists, but the poor are poorer and the rich are getting less rich. What the pro is saying is that he would rather the poor poorer provided the rich were less rich, so long as the income gap is smaller.
Social Justice: To the pro, it is acceptable to take money from someone through threat of force and give it to someone else, if this were done by an individual, it would be regarded as theft. Redistribution of wealth can be comparative to a thief stealing from someone with an income and using said income to provide for himself, regardless of any humanitarian motive, this is theft, social justice is not achieved through progressive taxation, it is rather a theft from one group and money given to another group. Even then, before the tax cuts of the 1920s, the Department of Treasury saw the wealthiest paying slightly over the middle class, while the poor pay 15.1% of the taxes, during a flatter rate, the poor paid less of the taxes. Stealing money from someone else gives incentives to hide the money, further reducing one's contribution to the nation and to public good, therefore social justice is crushed with a Progressive tax.
More Revenue: It has been seen that after every broad restoration of a flat tax that the government generates more revenue than previous. Imagine one's income as a pie, during the Roosevelt to 1970 era, the government was taking a large part (70% - 90%) of a small pie, thus less revenue is produced. During Woodrow Wilson's progressive tax, he too was taking a large part of a small pie. When Coolidge and Reagan brought about flatter tax rates, the economy expanded and revenue increased even when tax rates were dramatically cut, this was because more people got rich with a less progressive system. Taking more of one's wealth does not mean more revenue for the government, if a system is switched from flat to progressive, it provides an initial boost in revenue, but all the years following, revenue declines, this can explain the rising budget deficits in progressive tax nations like France, Sweden, Britain and Denmark.
Efficiency: It is an established fact, by the United States Department of Treasury statistics, that flat taxes produce more revenue than progressive taxes, therefore the pro point here is refuted, better yet, when tax rates are at a flat rate, the purchasing power of everyone increases, prices go down and many of the wealthier Americans fund new leisure projects for their homes or invest in stocks, both of these create jobs, as seen by the Bureau of Labor Statistics from 1980 - 2000, the 42 million jobs created were primarily due to more disposable income. Today, consumer goods sales account for 62% of US job growth, with a flatter rate, more goods and services are available to everyone, both public and private.
Since progressive taxes are inefficient in generating funding for the government and it promotes the idea of theft, there are two solutions for America's funding:
Flat Tax: As discussed before, flat taxes result in more government revenue because economic activity is stimulated and more money is made, thus the government takes a small part of a substantially larger pie. The purchasing power of the citizenry is increased, leading to an increased standard of living, a tax that takes, for example, 15% of $100 and 15% of $1 million still keeps the tax burden on the wealthy, therefore, "social justice" that the pro admires is preserved in a better manner.
Sales Tax: A sales tax is completely voluntary and rests on one's ability to buy consumer goods, naturally, the wealthiest citizens, who buy more consumer items than any other group, are going to pay this tax more often. If this tax were to replace all the other taxes (payroll, income, corporate, capital gains), the economy would be greatly stimulated and people would be able to purchase more, increasing their standard of living.
Onto the example about the spouses, if one spouse earns $40,000 and the other earns $400,000, if a rule is adopted that the higher spouse pays more, as an private deal, then that is not a progressive tax, that is simple spending on consumer items, if incomes were taxed at a progressive rate, however. for example 50% for over $250,000 and 10$ for incomes below, the spouses would only have $236,000 in disposable income, instead of the $440,000 that a sales tax would permit or the $396,000 that a 10% flat tax would allow.
The second part is about efficiency, which is that part that means that we tax consumption. Here the concern is about deadweight costs. All and any tax, by being levied, means that some economic activity doesn"t happen. But we do need to raise some taxes, somewhere, for we do rather need this thing called government and we"ve got to pay for it. Maybe we don"t need as much as we have, perhaps we need more, but the basic fact that there have to be taxes of some kind remains. We would obviously therefore prefer to raise the tax money we need by using the taxes that have the least deadweight costs. All other things being equal we"ll be richer by doing it this way rather than using taxes which destroy more economic activity for the same amount of revenue collected.
We know which taxes destroy the least economic activity as well. Repeated taxes on real property can actually create more economic activity in certain circumstances. Then more costly are consumption taxes, more costly again are taxes upon incomes and then most costly are capital and corporate taxes. Transactions taxes like the financial transactions tax are so ludicrously expensive in this sense that we don"t usually include them in our list: but they"re way up at the top there, even more damaging than capital or corporate taxes.
In the pro's argument, he concedes to my conclusion that flat taxes achieve the goal of progressive taxes with his 10% flat tax example, ergo, he has already forfeited the debate on progressive taxes, his argument then continues, not as an advocacy for progressive taxes, but an attack on the counter plans to progressive taxation, to this I respond.
Taxing consumption does not reduce economic activity, in tact, if a sales tax were to replace all the existing taxes, the surplus revenue for producers would be enough to have a net saving for all consumers.
Taxes are needed to pay for the government, even Adam Smith in the Wealth of Nations noted this, but he believed the proper way to fund the government was either through flat taxation or a tax paid based on 'convenience', which according to him included taxes on consumer items. Before the progressive tax, every government in the world was capable of funding itself without deficit. Before the income tax was even produced in the United States, it was capable of winning wars and establishing a substantial empire. Today, both Hong Kong and Singapore enjoy a higher standard of living than most other countries, with a higher HDI than the US, with a flatter tax rate and a surplus, proving that with flat taxes, funding government with a surplus. Much of post-cold war Russia's economic expansion is credited to the flat tax rate that was installed. States in the United States that have a flatter tax code have less unemployment and more job growth, states like North Dakota, Texas, and Colorado outperform more progressive states like New York and California.
Progressive taxes are an unnecessary burden on the economy, and the pro concedes to that fact, a flatter code can not only fund the government, but it can increase the standard of living and increase productivity, and still achieve all the values the pro holds.
- progressive taxes reduce work incentive
- progressive taxes give incentive to evade taxes
- progressive taxes hurt the economy
The debate should be weighed based on whether all groups of taxpayers benefit from only a progressive tax, which has been proven that no one benefits. On the flip side, people have been shown to benefit more from a flatter tax code.
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