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We all believe that taxation should be fair, and we all believe that
we know what is meant by fair. But do we really? Why doesn't anybody
seem to know how to do the calculations? Perhaps we failed to determine
what exactly it is that needs to be fair and equal.
Fair implies that something is equal. This means we can use mathematics
to evaluate it. But what should be equal? Without an assumed system
of values, even mathematics doesn't give us a clear answer. What is
fair in taxes? What is equal in taxes? Here are a few possibilities.
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Equal amount
Everybody pays the same dollar amount. Some local taxes take
this form. It is equal, but is it fair? Should the poor be charged
the same amount as the rich? Is this form of equal fair?
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equal percent - "flat tax"
If everybody pays the same percent rate, we have a form of
equal where the rich pay more than the poor. It is equal, but
is it fair? For a poor person, necessities will consume about
90% of his income. A tax rate higher than 10% will force him
to make serious sacrifices. For the super rich, necessities
will consume about 1% of their income. Some of them could pay
over 90% taxes without making any serious sacrifices. A flat
tax is equal, but is it fair? Can fair mean that the poor are
making much greater sacrifices than the rich?
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equal consumption taxes
People could be taxed according to what they consume. Equal
consumption would pay equal taxes. This would be equal but would
it be fair? Some taxes already are levied in this form - for
example the gas tax. But its not always clear who's doing the
consuming. Who are the primary beneficiaries of our police forces
and legal system. Most analysts say these services benefit primarily
wealthier citizens.
Other quandaries arise. The cost of basic commodities for the
poor is roughly 100% of their income. So a consumption tax would
be levied against 100% of the income for the poor. But for the
rich, consumption could easily be less than half their incomes,
even with luxuries. So the consumption tax rate would much higher
for the poor than for the rich.
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Equal burden - a form of a graduated taxation
Taxes could be designed so that each family suffers about the
same dent in their lifestyle. A person earning about $20,000
would have to make some small sacrifices to pay about $1,000
in taxes or 5%. It would impact just a little on his rent and
food expenditures. A person earning about $100,000 would make
similar sacrifices to their lifestyle (i.e.. almost impacting
their mortgage and food expenses) if they paid about $40,000
in taxes or 40%, and a person making $1 million would make sacrifices
to their lifestyle if they paid about $800,000, or 80% in taxes.
(These are examples, not suggested tax rates.)
By giving each taxpayer the same relative burdens we have made
it equal, but have we made it fair? Is it fair to charge one
person that much more than another? Is it fair to charge for
resources that were not used?
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Related Discussions:
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Conclusions: Values, Fairness, and Taxes
There are many different versions of "fair," and "equal." Once we
know which meanings we have chosen then we can establish our taxes
according to our definitions for "fair," and "equal." Once our values
are established, we can use mathematics to evaluate our methods.
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