Thesis: The progressive income tax we have now is fine.
In a recent Wall Street Journal Article titled “Top 20% of Earners Pay 84% of Income Tax”, author Laura Saunders discusses different statistics on how the income tax in America distributes the tax burden amongst the population, separated by the level of household income. Although not explicitly mentioned in the article, Saunders does seem to imply that this progressive tax is not ideal, as shown in the following quotes:
“The pressure on the U.S. income tax has prompted lawmakers on both sides of the aisle to seriously consider a national consumption tax. But liberals worry that such a levy could unduly burden the poor, while conservatives fear it would be too easy to dial up the rate and collect more revenue. As a result, experts say, there is little chance of tax overhaul this year.”
The fact that there is little chance at a tax overhaul is good news. Although this system initially seems to be overly burdening to the higher income households, any other system of tax distribution would undoubtedly burden the poor to an even greater magnitude. As shown in the graph below displaying the Gini coefficient of income equality for most of the developed nations, the inequality in income for US households is very clear. In a nation like this, having a progressive income tax does provide more benefits than costs.
The richer a country is, the more money its government needs to run its country. In a strongly unequal nation like the US, it is only natural that the richer population would bear most of that burden, because they are the ones creating such a demand. Implementing a different tax system, such as a national consumption tax suggested by Saunders, would heavily favor the rich at the expense of the poor, as indicated in the worries of the liberals. This type of tax system only works in nations with a more evenly distributed wealth.
In fact, the progressive income tax helps to alleviate some of this income inequality. As mentioned in the article, when excluding other federal taxes, the bottom 40% of Americans actually see a negative income tax, where they are receiving benefits from different programs for not owing any income taxes. These benefits help in being able to “reallocate” some of the wealth belonging to the rich to the poor. From an individual point of view this may seem unfair, but that point of view is what led to our nation’s inequality in the first place. It is much more socially beneficial to have such systems that help the poor, and since we ourselves won’t do so, the government should. Ultimately, the progressive income tax is fine, and we shouldn’t be seeking to change it.