stream of conscious
politics, business, maybe even some sports, why not?

the importance and absurdity of taxes

With tax day just two days behind us I think taxes will make an appropriate first post. Taxes, nobody wakes up thinking “Gee, I hope I can pay some more taxes today! Whoo! Dig taxes!” Nobody pickets outside of Congress with signs that say “Raise my rates” or “Tax me more!” We do need them, however. It’s how we pay for police, fire fighters, roads, soldiers, parks, schools, libraries, etc. Our achievements as a species stem are a result of governments. Be it the internet or the interstate, tax money has funded numerous technological advances. I must admit, our current system in absurd in its complexity, and we could definitely use tax reform, but the progressive tax system is the best system out there, especially for a capitalist economy such as ours.

The progressive system makes economic sense for many reasons. The first of which is an individuals marginal propensity to consume. The more money someone makes the less their marginal propensity to consume is. This means the more you make the smaller proportion of your income is spent. So the rich have a much larger portion of their income that can be taxed without affecting their lifestyle whatsoever. Meaning taxes are a relative light burden on the wealthy even at higher rates, while taxes of any kind are a heavy burden on those just above the poverty line. Meaning an equal rate is not an equal burden and it is the burden upon the individual is what should be equal, not the rate, rate is just a number and alone, says nothing about it effects on this country and its citizens.

Another way to look at this is disposable income. The wealthy have a large disposable income while the working class often has little if any disposable income to speak of. If 60% of your income is disposable, being taxed at a 35% rate is nothing compared to an individual with a disposable income of around 5% of their income and facing a 10% tax rate. So although it is tempting to focus on the rate itself to justify one (specifically the wealthy) keeping a larger portion of their income, what matters is burden, and the American people should share this country’s financial burden equally, don’t the poor have enough to worry about without the facing a larger burden from taxes than those who are already wealthy? After all placing the aspiring working class under an disproportionate burden only prevents them from achieving the American dream and if we are to expect everyone to do their best to achieve prosperity on their own then shouldn’t we give them their fair shake?

We should also keep in mind feasibility. A 16% flat tax would not be sufficient to achieve a surplus and would also break the backbone of the working class. A 16% rate is about twice what the average person earning 35k dollars a year, and earning 35k a year is not exactly upper middle class.

Now there is also the theory of dropping the income tax altogether in favor of a sales tax. All that is though is a flat tax on spending rather than income and as I said earlier the wealthy have a much lower marginal propensity to consume so they would actually be paying less on what they make than the working class proportionally speaking. Then there is fact that someone at the poverty line would be crushed by a 16% – which I hopefully don’t have to illustrate again.

So arguing the tax rate based on ‘equality’ doesn’t make since because the burden is not equal if the rate is, therefore the more you make the higher your rate as that creates an equal burden. Some people will dismiss looking at the tax burden entirely saying its subjective, or similar, and to a degree it is, but it is also what matters, far more than the rate itself. Could our system use reform? Absolutely. Should we change systems? Absolutely not.

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