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Wednesday, April 30, 2003

Are federal taxes flat or regressive?

Calpundit has recently been enlightening the blogisphere about how federal income have in the past half century gone from being progressive to essentially flat. I posted the following in his comments to his lastest post on the subject:

Kevin has documented several times on this site that income taxes have dropped from being "progressive" and are now already "flat".

Since Kevin is now writing about our ideals of taxes, I would like to point out that ALL income taxes are INHERENTLY REGRESSIVE, because they tax INCOME.

The rich benefit more from taxes because the government provides protection of and services to their property, or I'll call it, their wealth. A fair tax would therefor tax people on their WEALTH. Taxing wealth would create no disincentives, as wealth already exists. Instead, we tax income, which is the creation of wealth. This is an economic disincentive if you believe the libertarians here, or economically neutral if you believe Kevin.

An income tax is also profoundly unfair. At the low end, people who have nothing and must work to survive pay taxes despite having costing the government very little in terms of protection. At the high end people who earn $300,000 per year because they perform heart surgery or fly commercial airliners pay the same taxes as someone who "earns" $300,000 per year because their grandfather died and left them a $3 million estate. Actually, the professionals pay more because some of the spoiled brat's income is from capital gains. And if Bush gets his way with dividend exemptions, the spoiled brat may pay no taxes at all.

You're wrong, Kevin. Our federal taxes are not flat, they are profoundly regressive. The problem is that you have bought into the idea of measuring taxes against income, rather than wealth.

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