First of all I want to thank everyone who responded to my post on taxes. Between
Blogger,
Myspace, and
Yahoo! Answers I got 20 or so responses. It was so helpful for my paper and I really appreciated it. The people who scored direct quotes were
William (favoritism, I know),
Amelia (I actually took the names Mr. Millionaire and Mrs. Foodstamps and ran with them throughout the paper. Thanks for that.), and
Megan. I used ideas from everyone's posts though, especially
Tyler's and
Rachael's.
Next, I want to apologize to everyone who chose the proportional tax as their favorite. I used your quotes/ideas as the 'wrong answers' in my paper. I hope we can still be friends.
So, to highlight how I feel about the progressive tax and why it really is the most fair, I'm just going to share with you a couple of paragraphs from my paper that I feel like sum it up nicely.
Why progressive tax are the best:
For example let’s simplify the process and see how it works in action. Let’s assume a society wherein you can live on at least $30,000 a year. We’ll say Mr. Millionaire makes $500,000 a year and Mrs. FoodStamps makes $20,000 a year. We’ll tax Mr. Millionaire 25% and Mrs. FoodStamps 5%. This means that we’ll collect $125,000 from Mr. Millionaire and $1,000 from Mrs. FoodStamps. Since Mrs. FoodStamps is left with only $19,000 and she needs $30,000 to really make it, we’re going to give back her $1,000 and take $10,000 from Mr. Millionaire’s taxes and give it to her. The government will deposit $115,000 in revenue, Mr. Millionaire will be left with a measly $375,000 to make ends meet, and Mrs. FoodStamps will have her $30,000. When all is said and done, since we know it cost $30,000 to get by, Mrs. FoodStamps will put all of her money back into the economy, without being able to save any. But she will, at least, be able to get by. Mr. Millionaire will have the option of saving $345,000, if he wishes, after spending his $30,000 worth of necessities (but really we know he’ll spend much more than that).
But what if there was a proportional tax, we’ll say at 15%? Mr. Millionaire gets taxed $75,000 and Mrs. FoodStamps gets taxed $3,000. Mrs. FoodStamps now only has $17,000 to live on, which we know is $13,000 short of what she needs. But, we’re going to hit a snag here. As it turns out the government actually needed $115,000 in revenue to function. Between Mr. Millionaire and Mrs. FoodStamps they’ve only collected $78,000. So, not only are they not giving Mrs. FoodStamps any of Mr. Millionaire’s collections, they’re not giving her $3,000 back either. So, the government has $78,000 and a deficit, Mrs. FoodStamps is definitely finding out how she can get on food stamps, and Mr. Millionaire will be able to save at least $395,000 of his $425,000 left after taxes. This is not exactly a “win-win” situation. A proportional tax system is a figurative sort of ‘regressive’ since it leaves the poor worse off than they would be otherwise.
Megan pointed out that proportional taxes can be made less regressive by exempting taxpayers below a set poverty level (this was properly cited in my paper, but there is no need for that here). For example, Mrs. FoodStamps might be exempt from paying taxes since she makes less than $30,000 a year. The main problem with this, of course, is that now we’ve left the government with $75,000 and slightly larger deficit. It is important for tax payers to remember that their taxes help the government and all off its subsidiaries to function. A nation with out enough revenue will borrow money, driving down the value of the dollar and making us all a little poorer. A state or municipality without enough revenue will have to simply cut programs, which will leave us with substandard libraries, roads with potholes, a police force/fire state using outdated technology. In short, the effects of too little revenue reach wide and deep.
These numbers are obviously crude, and the tax system is more complicated that what is explained here. It does, however, draw a picture that we can understand in order to determine how these taxes affect society at large. We can see that when we tax the rich less, everyone else looses ground.
You may totally disagree with me, but like I said, I hope we can all still be friends. BTW, it was a position paper, so I was allowed to opinionated.
For the record, I thought it was interesting that so many people spoke of the regressive tax as stupid, idiotic, etc. Sales taxes are regressive. Sales taxes are regressive because they are a fixed amount, everyone pays the same taxes for any given good no matter what they make. If sales tax is set at 5%, then both Mr. Millionaire and Mrs. FoodStamps pay $1.00 in taxes on a $20.00 item. That $1.00 is a larger proportion of income for Mrs. FoodStamps than it is for Mr. Millionaire. So, you're all probably paying regressive taxes everyday. Where's the outrage?? (Property taxes are also regressive, but this post is already way too long.)
And for Amelia, who asked for more about the VAT tax: Go
here, this gives a pretty good description of it. Usually its describes as a regressive tax, but obviously the poor are hit harder with is than the rich. BUT, often consumption goods (necessities like food and clothing) are exempt from VAT. So, ideally VAT is just applied to goods that can be expensive because its rich people that are buying them anyway. I think its fishy, but whatever.