Why the Rich Should Be Taxed More: Moral Argument for Progressive Taxation
Moral Justification for a Progressive Tax
A progressive income tax is a situation where tax rates increase as income increases. A person making $20,000 will pay a lower percentage of his income in taxes than a person making $100,000 for instance. Almost all modern countries have a progressive income tax. Why should taxes increase with incomes? Why should the rich be taxed at a higher rate than anybody else?
Taxes on the Rich
The main reason the rich should be taxed at a higher rate is simple: they have utilized the system more. The two main factors that lead to wealth creation are (1) personal effort and (2) the socioeconomic system. Both are essential.
A person can work extremely hard and try their best to start a business or get a good job. But if that person is illiterate and has received no formal education, and if he lives in a country with no electricity, rampant crime, and no paved roads, bridges, trains or airports, no matter how hard he works, it will be almost impossible for him to amass significant wealth. On the other hand, an individual who benefits from a peaceful, modern, well-run society, but does not work at all, will also fail to amass significant wealth. So both individual hard work and the larger socioeconomic environment are essential for personal wealth.
A high earning individual has not only worked hard, but has also benefited a great deal from the larger system. The community's infrastructure, security and human capital (education and skills) are the background factors that have made his wealth possible.
By working hard within that system, they have utilized these factors more than someone else. They have directly benefited by attaining an education and by using the roads, bridges and airports built and maintained by the state, for instance. And they may have benefited indirectly by employing people educated by public schools, and purchasing from vendors who import goods through government-secured ports and shipping lanes.
Many argue that the wealthy have already paid their "debt" simply by engaging in market exchange: they paid a price for the goods and services they bought from other private individuals or companies. This argument fails to recognize that all of these transactions occurred within the context of a larger economic system that must be maintained. Without that system, none of those transactions would be possible.
Community, Exchange, and Wealth Creation
Without community, there can be no economic exchange. And with no exchange, no wealth. Therefore, the more wealth one has earned, the more they have benefitted from the community. They are relying more on the community, and the system of exchange, than a poorer person.
Thus the dollar (or euro or pound) is not just a measure of exchange. It is also a measure of reliance on and engagement with the community and the community's larger socioeconomic system. Basically, the more wealth one is getting, the more one is getting out of that system. So the rich, rather than being the most independent or disconnected members of society, are actually (at least economically) the most engaged with society.
The main question for policy makers is not whether the rich should pay more in taxes. The question is what proportion of income is due to personal effort, and what proportion to other community-based factors beyond their control. That will determine the appropriate specific income tax rate. But there must certainly be a higher tax rate for higher incomes.