Keller
02-12-2008, 11:23 AM
This semester I am taking a Tax Policy seminar and our topic for tomorrow's discussion is the fairness of a progressive tax structure. One of the commentors in the case book had the two following points on fairness and efficiency of the progressive rate structure:
(1) Fairness: He starts off with the basic premise that the tax structure should allocate the burden of producing revenue equally among taxpayers. He then goes on to articulate the basic idea of declining marginal utility and applies this to income. In application, he posits that the as a taxpayer receives a higher income for his labor, each dollar he earns is of declining value and therefore to equalize the burden (the actual "pain" felt from confiscating a dollar through tax, not the monetary amount) a progressive rate structure is mandatory to fairly allocate the burden among society.
(2) Efficiency: This is more of an aside in the article, but I found it insightful and thought I'd share it. Because it's a short aside and not the meat of the article, I'll just quote it:
A progressive tax is highly sensitive to contraction and expansion of the overall economy and it reacts to each in an appropriate manner. During a recession, for example, revenues produced by a progressive tax will fall faster than those from a proportionate tax, leaving more money in the private economy at a time when it is especially neded. During an expansion, reveues produced by a progressive tax grow faster than the economy, and faster than revenues from a proportionate tax, reducing the likelihood that the economy will become 'overheated' or inflationary."
(1) Fairness: He starts off with the basic premise that the tax structure should allocate the burden of producing revenue equally among taxpayers. He then goes on to articulate the basic idea of declining marginal utility and applies this to income. In application, he posits that the as a taxpayer receives a higher income for his labor, each dollar he earns is of declining value and therefore to equalize the burden (the actual "pain" felt from confiscating a dollar through tax, not the monetary amount) a progressive rate structure is mandatory to fairly allocate the burden among society.
(2) Efficiency: This is more of an aside in the article, but I found it insightful and thought I'd share it. Because it's a short aside and not the meat of the article, I'll just quote it:
A progressive tax is highly sensitive to contraction and expansion of the overall economy and it reacts to each in an appropriate manner. During a recession, for example, revenues produced by a progressive tax will fall faster than those from a proportionate tax, leaving more money in the private economy at a time when it is especially neded. During an expansion, reveues produced by a progressive tax grow faster than the economy, and faster than revenues from a proportionate tax, reducing the likelihood that the economy will become 'overheated' or inflationary."