Should the wealthy pay more taxes than the rest of us? Of course, no one disagrees with that. But how much more? Based on 2022 tax year, the latest available, the top 10% of income earners (those with adjusted gross income above $178,661) paid 72% of the total of $2.1 trillion taxes collected. Is that too much or too little or about right. The bottom 50% of income earners (less than AGI of $50,339) paid 3.0%. What is a “fair” distribution of the tax burden and/or an economically efficient distribution? Corporate income taxes raised $0.42 trillion that year and should really be abolished in our globally trading world.
I have written earlier (many times actually) that I support abolishing all income taxes (personal and corporate) and relying fully on consumption taxation. While it can be challenging to determine where things are produced, there is no question about where we consume them. But while waiting for that miracle to happen, how much more should higher income people pay in taxes than lower income people?
My sense of fairness (and economists norm for tax neutrality) says that the tax rate should be the same for everyone. In other words, if your income is twice mine, you should pay twice the tax. If all income taxes and welfare payments were replace with a Universal Basic Income for all and flat consumption tax (VAT) the result would be mildly progressive tax rates on income.
A note on Social Security: it is not a saving plan in which what you saved is there to pay out to you when you retire. https://wcoats.blog/?s=social+security
I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy. I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989. After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017. Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75. I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise. In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.” My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon. I live in National Landing Va 22202
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One thought on “Econ 101: How much should we tax the rich?”
I think it’s fair to tax higher income earners at a higher rate for at least two reasons. First, everyone must incur certain costs in order to maintain a reasonably acceptable standard of living. Everything else can be thought of as surplus income. A significantly greater portion of rich peoples’ income falls within this category. A fair taxation system would reflect this, by imposing progressive rates and/or providing a significant deduction for necessary expenditures. Second, because rich people have surplus income, they have significantly more opportunities to invest their many and effectively earn a second stream of income, sometimes called unearned income, which is often taxed at lower rates (eg capital gains). Imposing a higher tax rate on earned income compensates, to an extents, for that advantage.
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I think it’s fair to tax higher income earners at a higher rate for at least two reasons. First, everyone must incur certain costs in order to maintain a reasonably acceptable standard of living. Everything else can be thought of as surplus income. A significantly greater portion of rich peoples’ income falls within this category. A fair taxation system would reflect this, by imposing progressive rates and/or providing a significant deduction for necessary expenditures. Second, because rich people have surplus income, they have significantly more opportunities to invest their many and effectively earn a second stream of income, sometimes called unearned income, which is often taxed at lower rates (eg capital gains). Imposing a higher tax rate on earned income compensates, to an extents, for that advantage.