The American tax system is widely debated on a philosophical level. Ever since Congress passed the Sixteenth Amendment, which granted the federal government to retain taxes instead of dispersing them to the states according to their populations, America has used a Progressive Tax System to varying extents.
By definition, a Progressive Taxation System is one where people who earn a greater income pay greater taxes by percentage than those with lower incomes. In America, the government utilizes this system of taxation by dividing the population into brackets according to their incomes. Those with higher incomes, naturally, have to “donate” a greater percentage of their income to Uncle Sam.
As I explained in my last blog, Congress began enacting a modest Progressive Tax System on incomes in 1861. In those days, there was a three percent tax on incomes above $800, and a five percent tax on those above $10,000. However, what are the philosophical and technocratic pros and cons of such a taxation system?
Philosophically, such differences allegedly arise due to discrepancies caused by capitalism itself. Adam Smith himself in The Wealth of Nations proclaims that the capitalist system can often be disadvantageous to the poor, and that the rich have a responsibility to make up for them. He claims that such a responsibility is “not very unreasonable.”
Progressive tax systems have pragmatic arguments for its implementations. The system arguably allows the government to collect the maximum amount of taxes. Another argument basically states that as a person attains a higher income, his propensity to consume decreases. Therefore, a greater tax burden would have little effect. In order to make up for the difference, the government ought to be able to take more from them.
There are just as many arguments against a progressive tax system. Philosophically, one could make the claim that taxation often is used for social purposes, such as social equity. However, some studies have shown that progressive taxation systems really do little to reduce income gaps. Pragmatically, other studies show that an increase in taxation on the rich only increases the amount of tax evasion.
Additionally, the economy is driven by enterprise and businesses. Those who own those businesses always have a greater income than those who do not. Who, then, has the ability to hire employees? Businesses. It could be argued that if those with higher incomes, who also run businesses and hire employees, are taxed higher, the economy could even be stifled.
There are countless arguments for and against a progressive tax system – I only named one or two. What do you think about it? Be sure to comment and let me know!
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