Tax musings

I originally had this at the end of my previous post, but it’s worth its own post.

On a related issue, I continue to be amazed at how seldom, if at all, I hear people write or talk about taxes in terms of “what am I getting for this”? I start thinking about this when pondering the “progressive” income tax. There must be a non-biased name for this. I’d prefer to call it the punitive income tax. Often defenders of it say that people earning higher income should pay more. But under a flat tax, that is, where everyone pays they same percentage of their income, those who earn more do pay more. So I don’t know how one goes about figuring out the “correct” form of tax brackets.

The price of most products people buy do not depend on one’s income or wealth. One exemption is property insurance, such as home-owners or car insurance. But the customer can determine his preferred level of coverage.

My guess is that underneath the desire for a “progressive” tax system is the idea that one person’s need is a moral claim on another person’s wealth. Not to get into a dissertation on ethics here, but I don’t see what facts support such a claim. And even if it were true, is an action ethical if one is forced to do it?

Back to taxes, I found some IRS data quite interesting. For example Table 1 here shows that as fo 2005 the top 10% of income earners pay more than 70% of all income taxes. Table 7 at this IRS site (an Excel file), shows how much the top X percent of income earners pay in income tax as a percentage of total income tax collected. For the top 10% of income earners, their share has risen from 54% in 1986 to 70% in 2005. Of course, people move in and out of this top 10% group every year.

The Detroit News published results of Congressional Budget Office report showing that since the tax rate cuts of 2000 (not simply “tax cuts” as cutting the tax rate can increase total tax revenue), people in the top 20% of incomes paid more taxes than before the rate increase.

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