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Progressive Tax



"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state."

   --  Adam Smith

Progressive taxation is inevitable under under a democracy
In a democracy, each person gets one vote. There are always concentrations of wealth, meaning that the average income is higher than the median income. Simply, most people earn less than average.

This means that when voters wish to vote for something they will generally receive a subsidy. The subsidy may mean that the cost of what they are voting for is less that what they would pay for even if they had the money.

This is a form of waste, essentially a good or service is costing more than it is worth to the consumer of that good.
Other people are paying the difference, but it is still waste.

This leads to progressive taxation where the higher earners pay more, as the regular voters do not factor in the waste to their voting intentions.

Misconception of proportional tax

You say that under a proportional tax, the rich man pays a higher amount than the poor man, but he is still having the same (proportional) burden placed on him to support government. You look at only what is being paid, and not what is being paid for. Both get back equal government, so in proportion to what is received; the rich man is paying a greater proportion. 
Consider this. A ratio is a comparison of two numbers. A proportion is an equation with a ratio on each side, a rich man's $10,000 tax out of $100,000 income is proportional to a poor man's $1,000 tax out of $10,000 income. Let us assume that the average cost of government is $3,000 per capita. So what is the ratio of the rich man's tax to his share of government cost? It is $10,000 / $3,000 or 3.3333. What is the ratio of the poor man's tax to his share of government cost? It is $1,000 / $3,000 or .3333. If you then try to create a proportion the equation is no longer equal; 3.3333 does not equal .3333. So when you consider the actual benefit each man is getting and what he is paying, the burden is not proportional, 
More math. So if each person in the above example were to pay $3,000 in equal tax, the the ratio for each of the tax paid to the cost of government would be $3,000 / $3,000 or 1. And placing these ratios in a proportion equation would be 1 = 1, or the ratios would be proportional. Now this would place a heavy burden on the poor man, which would be intolerable to him, so he would have a very great incentive to demand the absolute least government possible, an incentive he does not have under a progressive income tax or a proportional sales tax.

Progressive tax hurts those who plan ahead

Some people are prepared to sarifice and work hard now. Why should they be taxed more heavily in future because they applied, sense, hard work and planning to my life when others drifted along.

Parable

Suppose that every day, ten men go out for beer and the bill for all ten
comes to $100.
If they paid their bill the way we pay our taxes, it would go something like
this…

The first four men (the poorest) would pay nothing
The fifth would pay $1
The sixth would pay $3
The seventh would pay $7
The eighth would pay $12
The ninth would pay $18
The tenth man (the richest) would pay $59

So, that’s what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the
arrangement, until one day, the owner threw them a curve ball. “Since you
are all such good customers,” he said, “I’m going to reduce the cost of your
daily beer by $20″. Drinks for the ten men would now cost just $80.

The group still wanted to pay their bill the way we pay our taxes. So the
first four men were unaffected. They would still drink for free. But what
about the other six men ? How could they divide the $20 windfall so that
everyone would get his fair share?

They realized that $20 divided by six is $3.33. But if they subtracted that
from everybody’s share, then the fifth man and the sixth man would each end
up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill
by a h higher percentage the poorer he was, to follow the principle of the
tax system they had been using, and he proceeded to work out the amounts he
suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).
The sixth now paid $2 instead of $3 (33% saving).
The seventh now paid $5 instead of $7 (28% saving).
The eighth now paid $9 instead of $12 (25% saving).
The ninth now paid $14 instead of $18 (22% saving).
The tenth now paid $49 instead of $59 (16% saving).

Each of the six was better off than before. And the first four continued to
drink for free. But, once outside the bar, the men began to compare their
savings.

“I only got a dollar out of the $20 saving,” declared the sixth man. He
pointed to the tenth man,”but he got $10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar too.
It’s unfair that he got ten times more benefit than me!”
“That’s true!” shouted the seventh man. “Why should he get $10 back, when I
got only $2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get
anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks so the nine sat down
and had their beers without him. But when it came time to pay the bill, they
discovered something important. They didn’t have enough money between all of
them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our
tax system works. The people who already pay the highest taxes will
naturally get the most benefit from a tax reduction. Tax them too much,
attack them for being wealthy, and they just may not show up any more. In
fact, they might start drinking overseas, where the atmosphere is somewhat
friendlier.

Ron Paul on Jay Leno

Ron Paul: I would like a flat tax of 0
Jay Leno: but how would we survive if Government did not have the money
Ron Paul: The people would have the money
Jay Leno: I have shortcomings, but the message has no shortcomings
(Laughter)

Also

Progressive tax rates mean regressive incentives.

Links

http://www.fairtax.org/site/PageServer?pagename=about
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