What constitutes equitable taxation?

[QuestioningStudent]

This may perhaps seem an odd question, but in several debates and discussions I've had of late, this issue has come up. It seems that there are about four real ideas for taxing people in a fair and equitable fashion, and I'd appreciate some input. I am not aware of any technical terms for these concepts, so bear with me, please.

Ideas for equitable tax burden distributions:
1)Tax people in proportion to the value they derive from society; this argument has generally been presented as equating to taxing the goods that a taxpayer consumes, e.g. a national sales tax.
Does not require an income tax, and is, in fact, antithetical to it, as it supposes that you only benefit from the money you spend, which will not by necessity be all that you earn.

2)Taxing everybody for the same absolute amount, i.e. the exact same amount of money. Everybody pays the same in this system, every shares the financial burden for the society "equally."
Does not require an income tax, and is diametrically opposed to it.

3)Taxing everybody for the same percentage of their wages. This says everybody owes the same portion of their work in exchange for the benefits of the society, not the same dollar amount, as the prior system means everyone contributes the same portion of their time and money to the system, and the latter does not.
Obviously requires an income tax.

4)Distributing the burden of taxation equally; that is, recognize that (hypothetical numbers here) a 5% tax on a person making subsistence level wages might be equivalent in terms of affecting the taxpayer's ability to purchase goods and survive as a 45% tax on a person at a much higher income level. In this concept, equal discomfort due to taxation is the ideal, not equal dollar values or equal time, etc.
Obviously requires an income tax.


So what do you all think? What's the best system? Why? How do you convince someone (particularly someone that favors the first system) that they're wrong?

Thanks.
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To everyone who's addressed this in the economics forum, thank you again.

[kodi]

1. first, from what premises does one work?

what is equity?

what is fair?

how is it defined?

who defines it?

and what value systems are operating?

go for it, you have all of human history to use as a starting point.

and if you can figure it all out, let us all know.

[QuestioningStudent]

3. I'm not providing an answer.

I'm asking a question. Y'know, operating on the idea that one should have a rational system of taxation, what's the most appropriate basis for having it? Which of those ideas of equitable tax systems is the better one? What values say a particular system is the right one? I've got my own opinions; I'm trying to learn others' viewpoints and arguments. You have any thoughts on the matter?

[kodi]

5. mine is ..."it depends"

it depends on circumstances, on what the taxes are used for and what happens to society as a result of the taxation.

would i pay 50% in taxes if i knew that i would have free, cradle-to-grave QUALITY health care and sufficient resources in my old age not to have to eat government cheese and cat food in a ramshackle abode? you bet i would.

most people would.

what about unemployment benefits and life-long education?

do i get these too?

are these considered in a vacuum, or as a part of international trade and technological forces that requires constant re-evaluation and re-direction of national vitality and purpose?

and what about those who did not agree with me? who is to say how they might be forced to conform to a taxation policy which would bring it about.

this is what representive democracy is all about.

it is the articulation of ideas which capture the moment and define it. one has to show how this path is what is needed and convince enough of those making the decision to have it happen.

that is what must be valuated, and it has to be articulated in some sort of citizen or societal gestalt,

and i dont believe what i want is necessarily what everybody else wants and i may well be the minority.

i can not proceed down a path of action for which many possibilities have not yet been assessed.

[QuestioningStudent]

6. In other words,

You won't have an opinion until the issue is democratically decided? I am confused, perhaps this is not what you meant.

If a government provides a certain set of services, S, and needs an amount of money, M, to provide those services, which, if any, of the methods of taxation I listed would be the best (if not necessarily perfect) way to provide the M needed for S?

You're welcome to assume, as this is an idealized, hypothetical model, that S includes all the services you mentioned, and M is sufficient to pay for them. I'm not asking what the tax rate for any given method would be, just which method you think is best. You, personally.

[kodi]

9. dont be confused

no tax policy can be discussed cogently until detailed analysis of its affects are done.

you did not present anything on what the citizens get in return for the taxes in your inital post, and only addressed later any of the items i mentioned in my earlier post.

this stuff is serious and has to be discussed seriously, without sophmorific and glittering generalities.

wealth is created by the private sector but the purpose government, according to classical political theory is to do justice to its citizens.

what is justice to one may not be to another.

do i think that a man who makes by salary $1M should be taxed at the same rate as a man who tru his labors makes $25K? certainly not, but neither should labor be taxed at the same rate as investment. so that man who makes and earns from the sweat of his brow should be taxed lower than a man who makes his money from investment if the sums are the same.

[mumon]

2. Wrong question.

While it's possible you're a conservative under deep cover (since your question is often asked by radical conservatives), let me give my standard anwer.

Taxes are part of the "social contract" that people pay in order to get something in return.

Consider your first option, then:

Tax people in proportion to the value they derive from society.

What value does Bill Gates derive from society?


1. Security- he's got a hell of alot more to lose than we do.

2. The security of his work force- without it, he's hosed.

3. The security of his contractors, subcontractors, customers, their families...for without it, he's hosed.

Got it? And don't think for a moment that he doesn't derive far more value from this than all of the others combined- that's capitalism, kid.

The answer to your question is therefore a progressive system.

Now, let's look at the question from ANOTHER angle (I love how when this question is posed by conservatives, the universe of choices is limited...)

What method of supporting the government is best for society as a whole?

Adam Smith had the answer to that one. Karl Marx had an answer that's closer to Smith, actually, then the radical conservatives.

The answer is: a progressive system. People in lower income brackets tend to have more monetary needs; any marginal increease in their income is recycled - and amplified- back into the economy.

The rich on the other hand, can squirrel the money away in a mattress, or in Peru, or in Patagonia or in ... you get the picture.

Marx with his "labor theory of value" made the compelling argument that the working classes were continually cheated out of their money anyway, thanks to capitalism. So in order to redress that, OR, if you want to do what's purely pragmatic, a highly progressive tax system is the answer.

[QuestioningStudent]

4. I can't believe I forgot to mention

that the 4th option I mention is, indeed, a progressive system of taxation. So you're going with option 4, and have presented some well-thought out answers. Thank you. But, for the record, why must one assume that every time an individual asks a question like this they are a conservative? *sighs* Ah, well. Thanks again.

[mumon]

8. Because I get asked this question all the time from conservatives.

Without any context they ask, "How much do you think you should pay in taxes?" which is a stupid question in and of itself. "What's the quid pro quo?" I reply.

I'm usually the treated to some insult like "Youc can't even answer a simple question!" from them, which generally elicits the response, if you don't understand my answer, why don't you go back to school and study either economics or contract law?

[Xithras]

7. I prefer a variation on #3

Replace "wages" with "wealth" and #3 has my support. I'd like to see something akin to a 1% annual "wealth tax", e.g. a flat tax percentage based on the total combined value of a persons savings, investments, and property holdings with values in excess of $2,500.

Under a system like this, a person making $20,000 per year, renting a home, and with an old $1,500 clunker in the driveway would owe $200 a year in taxes.

Someone like me, with a joint income of around $75,000, with two cars that currently Blue Book at a combined $18,000, and who owns a 4/2.5 currently appraised at $210,000, would owe roughly $3,000 in yearly taxes (that's actually less than I payed last year, btw).

Someone like Bill Gates, with a total net worth somewhere around $50 billion, would pay about 500 million a year in taxes.

No exemptions other than certain permitted savings (retirement, college). No minimum or maximum income limits. No tax credits. No confusing laws. Offshore accounts are just as taxeable as in country accounts. And EVERYONE, regardless of income or social status, goes to prison if they're found to be hiding assets in order to dodge their tax duties.

This is, quite simply, the fairest tax system I've seen to date. While certain other progressive tax systems seem more appealing (tax just the rich, let everyone else skate) they tend to ignore an important fact...if you shove the entire financial responsibility for the country onto the backs of the rich, there's nothing stopping those rich from packing up and moving their wealth to another nation that WON'T do that...and there will ALWAYS be countries willing to harbor them. This system has the advantages of being 100% fair (everyone pays an equal percentage of their value) and yet it doesn't excessively penalize wealth...it would take 100 years for the government to bankrupt ANYBODY under this system, and that assumes a cessation of wealth generation.