There is no denying that we live the way we do now because
we have managed to build a different kind of society over the tens of thousands
of years that separate us from the kind of existence that our forest dwelling
ancestors used to lead.
If we accept the argument that everything invented by human
beings and every progress made by them become the property of humanity as a
whole after the death of their creators, we must also accept the argument that
anyone who uses such inventions or relies on the progress to enrich themselves,
must pay a royalty to the society in which they operate. And the payment they
are asked to make usually comes in the form of taxation.
This argument forms the basis that justifies the principle
of taxation. There will be another time to take up the question as to what rate
of taxation would be fair. But there is another aspect to this very question
that we can take up at this time. It is that regardless of the baseline from
which we begin taxing someone, we ask whether or not we can justify
progressively increasing the rate of taxation the more that someone earns. This
is a principle that stands in opposition to that of the flat tax.
To answer that question we must do two things. First, we
must cite the factors that would justify the principle of progressive taxation.
Second, we must respond to the criticism that is usually leveled against the
possible side effects that would be created by this form of taxation.
Here is why progressive taxation is justified. The
accumulation of wealth by an individual will gallop because of two reasons. The
production is increased or the price of each unit sold is raised or both. When
we say increased production, we say more reliance on the mechanisms that were
left behind by the inventors – mechanisms that now belong to the society in
charge of taxing the individual. And so, the more efficiently the individual
uses that which belongs to society, the more he ought to reimburse society. It
is like renting a car to someone not only by the hour he uses it but also by
the miles he drives it during each hour.
And here is why it is justified to progressively tax the
individual who raises the price of what he produces beyond the profit he is
already making. It is that the idea of taxing riches beyond reasonable wealth
is instinctively appealing not because of envy but because there is a practical
side to the idea. It is that the individual can raise the prices only by
charging what the market will bear when there is no competition to force the
price down. This is behavior that must be discouraged by taxing what must be
viewed as ill-gotten gains.
As to the criticism that is leveled against the principle of
progressive taxation, it centers on the idea that it discourages people from
working hard. Well, we see how false this criticism is when we consider the
fact that progressive taxation does not usually begin to bite till someone has
reached the point where he has worked himself so hard, the mind and the body
can no longer function properly. For example, I worked in all sorts of jobs,
including ones that paid double for overtime. After putting in a certain number
of hours, and doing it for two weeks in a row, I refused any more overtime as
did my co-workers because we could not function properly after that, and we
knew it.
I also ran my own business – several of them, in fact – and
whether I was in my thirties, my forties or my fifties, I could only work this
much and no more. What this says is that galloping riches cannot come from the
galloping ambition that makes you work harder and harder. Galloping riches can
only come from galloping greed that makes you want to cheat and do end-runs on
the system. Yes, my friend, the body and the mind have their limits but greed
has no limit, and progressive taxation erects a barrier that can check that
limit.