Taxes

Taxation as a Source of Revenue

Taxation is the government’s main source of revenue. The government spends the money raised by taxes to provide residents with public goods and utilities, as well as to fund various long-term and short-term programs such as road building and school construction (Stiglitz, & Rosengard, 2015). There are, moreover, other tax regimes, such as flat tax and regressive taxation, among others. The paper debates whether the progressive tax system is equitable or unequal to taxpayers, reaching a decision based on the evidence provided.

Examples of Tax Systems

The progressive tax, tax liability/burden, high-income earners, low-income earners, pure commodities, tax system/structure, equal, unjust, and flat tax systems are all examples of tax systems.

Is Progressive Taxation Fair or Unfair?

The progressive tax system refers to that system where an increase in individuals’ income leads to an increase in their tax liability, while a decrease in their earnings leads to a reduction in tax burden (Stiglitz, & Rosengard, 2015). It means, the less the individuals earn, the fewer they pay, and the more they make, the more tax liable they are. The main aim of the progressive tax system is to bring equality or bridge the gap between the high-income earners and the low-income earners, where, the amount taxed to the people with huge earnings gets used to provide pure public goods that are used by the low-income earners (Auerbach, et.al., 2013). However, a heated discussion or argument emerges on whether the progressive tax is fair or unfair to the taxpayers.

The Benefits of the Progressive Tax System

Progressive system is the most appropriate tax structure because higher salaries enable the wealthy people to pay higher taxes, which lessens the tax liability of the low-income earners. Apparently, as stated by Auerbach, et.al., 2013, the poor have the smallest disposable income because they spend more of their cash on survival needs such as feeding themselves, housing, clothing; therefore, the progressive system enables them to keep more of their money. In fact, the affluent taxpayers have the ability to provide for their primary and secondary needs; hence, charging them more tax is fair and just, unlike the flat or any other tax system that ignores the difference between the poor and the rich. Again, the universal law states that you cannot give what you do not have. Therefore, the poor cannot be taxed more than what they earn.

Reducing Inequality and Providing Satisfaction

Another fact supporting the progressive tax is that it reduces the inequality between the poor, giving the sense of satisfaction to the taxpayers. Progressive tax system ensures that there is proper distribution of taxes as those who earn more income get levied more, and those earning less income still pay lesser tax. The main aim of any economic system is to bridge the gap between the poor and the rich (Auerbach, et.al., 2013). The most efficient way to close the gap is through taxation, where the rich gives more, and the government uses it to provide pure public goods and services to the poor, such as free education, hospitals, and the rest. Hence, the tax system inserts more pressure on the more capable individuals, and put less pressure on the poor and the middle class. The tax system ensures that it adheres to the principle of equality, and also avoid the oppression of the poor, making it friendly and fair.

Equality in Income Sacrifice

Apparently, the law of diminishing utility is also applicable to the money as well; therefore, progressive tax system brings about equality in income sacrifice. Under the progressive tax system, there exists an equality of revenue sacrifice among the tax payers. According to the law of diminishing utility, every increase in earning leads to a decrease in the marginal utility of money (Stiglitz, & Rosengard, 2015). It means, the rich do not feel the pinch while paying a given amount of tax; so taxing them more income tax demands or requests them to make the equivalent sacrifice. Also, decrease in earnings results to a marginal increase in utility for money. Hence, the poor still have a high affinity for money to improve their living status.

Arguments Against the Progressive Tax System

On the other hand, the progressive tax system is unfair as it punishes those people who work hard to earn more money. The high taxation of the wealthy discourages as no incentives for them to work hard. Every individual in a nation should be treated the same, making the flat tax system the best to bring fairness and acknowledge the hard work of the wealthy. Nevertheless, a flat tax system reduces the potential deadweight loss of taxation and supports the good work ethics. The progressive system violates the universal principle that all persons are equal under the law since it treats the wealthy and the poor differently. Nevertheless, the system also creates an unfair representation where, for example, the 10% of the population fund more than 70% of the tax base of a country, and they only receive the 10% representation in the government posts (Brownlee, 2016).

Disadvantages of Taxing the Wealthy

Finally, the low-income earners make the highest maximization of the pure public goods such as free medical services, access to free education, and the likes (Brownlee, 2016). However, the effluents do not even access the free public goods. In fact, they get the services from private institutions or agencies, where they pay for themselves. It means, taxing them more is a way of taking away what they have sweated for and giving it to other people forcefully. They affluent end up paying for the services they do not use, despite the efforts made by them to be where they are.

Conclusion

In conclusion, a progressive tax system is fairer than any other tax system. The wealth inequality is a serious challenge to most of the economies in the world, and any system which adds more problems to the economy is always inherently unfair. There is a substantial need to bridge the existing gap between the poor, to raise the living standards of all the peoples in a country. Again, the poor cannot afford some fundamental needs such as medical services, proper education; hence, the government through progressive taxing provides them with these free goods and services to better their lives.

References

Auerbach, A. J., Chetty, R., Feldstein, M., & Saez, E. (Eds.). (2013). Handbook of public economics (Vol. 5). Newnes.

Brownlee, W. E. (2016). Federal Taxation in America. Cambridge University Press.

Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.