Do you believe our tax system is fair?

Our system is progressive meaning the more you make the more you pay both in percentage and in total dollars.  Some points to consider:

When deductions and tax credits are applied, many people with lower levels of income pay no federal tax and may even receive a tax return for more than they paid.

The top 20% of all US households pay 94% of all federal income tax paid according to the Congressional Budget Office.

Most other taxes are flat (sales tax, excise tax, property tax, etc) meaning lower income wage earners pay more in dollars as a percent of their income.

Some individuals (usually higher earners) receive a portion of their income in dividends or capital gains which are taxed at a lower rate that earned income (wages).

Is this fair or is this wrong?  Why do you believe so?

Expert Answers

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First of all, there is one factual error in this question.  Things like sales taxes are not flat.  A flat tax takes the same percentage of everyone’s income.  A sales tax does not do this.  Instead, a sales tax typically ends up taking a higher percentage of the income of people who make less money.  Therefore, it is regressive and not flat.

It is not clear which aspect of this system you are asking about.  Of the things that you mention, some are progressive (income tax) and some are regressive (the sales tax).  Let us discuss both of these situations.

Economists say that there are two ways to justify distributing the tax burden in any given way.  First, there is the “ability to pay” criterion.  From this point of view, taxes should be placed most heavily on those who have the money to pay them.  Therefore, we should have progressive taxes.  People who espouse this position would say that our income taxes are good because they take the most from the people who can actually afford to pay and they help those who cannot.  Second, there is the “benefits received” principle.  In this view, the people who use government services the most should be the ones who pay the most.  The classic example of this is the gasoline tax.  People who believe in this view of taxation would say that things like excise taxes are fairer because they fall more heavily on those who use certain government services.

It is also worth noting that many conservatives believe that we should not have progressive taxes because they are counterproductive.  They feel that the people who make the most money are the ones who contribute the most to society.  They feel that taxing such people discourages them from trying to make more money.  If we discourage them in this way, they do not do things that help to boost our economy.

This question boils down to which of these visions of taxation you subscribe to.  Do you believe those who have the ability to do so should be made to help others?  Or do you believe that putting heavier taxes on those who make more money punishes people who are behaving the way our society and economy need them to behave?

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