Progressive Taxation

I recently began a debate with a friend of mine concerning the nature of progressive taxation.  I stated that I believe, and quite strongly, that the rich should always be taxed more than the poor.  The fellow disagreed.  I, of course, fail to see why, but the debate was cut short because he wanted to talk about it later.  Of course, I will.  However, I’m going to organize my thoughts here.  I am going to base this essay on the premise that progressive taxation is vital to modern nations, because it allows for a larger tax base, it is less harmful to the poor, and because Canada already implements regressive taxation via consumption taxes.

First and foremost, it just makes more money.  We’ll use numbers to highlight this premise.  Suppose the nation has a population of ten million people.  One million of these people make $250,000 gross per year; the other nine million make only $20,000.  Extreme numbers, but it will allow the point to be highlighted.  We’ll use two brackets for this example: the rich pay 35% taxes on income, where the poor pay 18%.  This is exemplified in the income tax system in Canada.  The total tax income received by the government in this case is $119.9 billion.  Taxing with a flat rate of 26.5%, the average between the two extremes, produces a total of $113.95 billion.  Therefore, it can be seen clearly that a progressive tax system will generate $5.95 billion more in tax dollars that can be devoted to a wide variety of purposes.

One of the best purposes this money can be directed towards is social services.  By social services, I mean those services that help the poor: welfare and employment insurance, food banks, shelters.  However, the best social service we can offer is to prevent them from ever needing those things listed above.  We’ll use the same numbers above to highlight this effect.  For reference, the poverty line in the average Canadian city is measured at $17,515 for a single individual.  A man who gains a net income of $250,000 and is taxed at 35% brings home $162,500, or 9.28 times the poverty threshold; a man who grosses $20,000 and is taxed at 18% will bring home $16,400, or $1,115 less than is considered poverty.  He’s obviously poor.  Now let’s say we averaged the tax rate again: the rich man now brings home $183,750, placing him at 10.49 times the poverty line, whereas our poor man brings home only $14,700, pushing him under the line by $2,815.  This man was going to have a hard enough time as it was, being more than a thousand dollars under poverty; now that we’ve “balanced” the taxes, he’s another $1,700 away from it.  He will be hard pressed to stay alive.

Finally, Canada already has a regressive tax scheme, in the form of consumption taxes.  Thus far we’ve only spoken of income taxes, which are obviously progressive in this country.  However, consumption taxes, popularly known as sales tax, are entirely regressive: they are the same for everyone making a purchase of similar products.  These taxes hurt the poor more than the rich.  Everything in Ontario that is not considered a necessity is taxed at a harmonized sales tax rate of 13%.  You want the shoes?  That’s another 13% on the price.  It’s the same for the sports car.  Things like milk, bread, and other staple foodstuffs are exempt, as are baby clothes, diapers, and medicines.  Sin taxes, applied traditionally to tobacco, alcohol, and motor fuels, are even higher, and just as equal to both the rich and the poor.  Given that these taxes apply to everyone, it may be fair to give the poorest among us a break on their incomes, particularly as averaging the income tax rate gives him far less money to spend on the things he needs, never mind the things he wants.

By this point, it should be pretty obvious that progressive taxation is the way to go; most modern nations do it, to some degree.  Some people will claim that it’s somehow unfair that those people who make exorbitant amounts of money be taxed so highly, but I see that argument as hedonistic.  The additional tax taken from the rich man could literally feed a family down on its luck for a year, and all he had to give up was twenty grand he didn’t really need in the first place.  A country is a group of people united under a common banner, and hopefully under common ideals; unwillingness to give up something in order to help those of your countrymen who need it smacks of selfishness.  Clearly, progressive tax makes more money for the government, it helps keep those at the bottom from slipping into complete destitution, and it’s applied where it counts the most, on incomes.  As far as the fancy shoes are concerned, you can pay the same tax as everyone else if you want to buy them, regardless of your income.