What Is A Progressive Tax System?
There are three general flavors of tax system:
Over the years, our income tax brackets have gone up and down with the political winds of the times, but the general structure has remained the same.
Why Is A Progressive Tax System Unfair?
So how is a progressive system unfair? It depends on who you ask. Some would say that those who have more can pay more (you may have never heard this before, but some people think rich people don’t pay their “fair share”), and some would say it penalizes success. There’s some truth to both sides of that argument. It really comes down to your mindset - if you believe wealth is largely the result of luck or circumstances (good or bad) then you probably believe the redistribution of wealth through a progressive tax system is more fair than a line drive to center field. You’re a pie person - you believe that the country's economic pie is only a certain specific size, and for one person to take a bigger slice means everyone else gets a smaller slice. Redistribution, then, is the only way to make things fair.
On the other hand, if you believe wealth is largely the result of opportunity, hard work, and merit (or lack of it) then you probably believe a progressive system is the government being a playground bully stealing lunch money on a national scale. You’re a candle person - you see the country's economy as a candle with an open flame, and there’s no limit to how many other candles we can light up while we all still have a nifty open flame on our own candle. You think a progressive system of redistribution by definition smothers the brightest candles.
The reality is that a progressive tax system is unfair…just not in the way most people think. In 2018, the richest 1% in America earned 21% of all income in the country…but they also ended up footing 40% of the total tax bill. The top 10% earned almost half of all the income in the country…and paid 71% of all income taxes. The bottom 50% of earners paid only 3% of all income taxes. This distribution of the tax burden has been steadily shifting to the higher income earners for the past half century. When you put it this way, it’s pretty obviously unfair…in favor of the lower income brackets!
Unfairness…By Design?
The really interesting thing about our tax system is that just about everyone – on both the political Left and Right – agrees that our current system is way too messy, complex, and complicated. The dirty little secret is that it’s designed that way! Politicians love to use taxes to influence social policies and other behaviors in Americans. It’s kind of like using a blowtorch to illuminate a nitro factory - sure, you can do it, but it’s a bad idea. The problem is that social policies mean different things to different people in different places and different times, and that allows politicians to slip through some nifty nuggets for themselves.
Speaking of dirty little secrets, there are loads of loopholes that save loads of money for those who know about them and can take advantage of them…and they are completely legal! These loopholes aren’t omissions or things that haven’t been addressed. To the contrary, they were explicitly created to benefit politicians and their deep-pocketed buddies. If you have an army of accountants and lawyers to sniff these things out and do all the necessary paperwork, you can enjoy interest free loans, write off the cost of your yacht, pay less income tax because of your 2nd (and 3rd, and 4th, etc.) home, and much more!
What Can We Do About This?
While tax evasion is one possible solution, it’s not a good one. Not only is it blatantly illegal, but the IRS just hired another 87k employees to crack down on precisely that! And remember, that’s how they got Al Capone, so yeah, the government is VERY serious about collecting taxes!
It seems to us that to truly make things “fair” would mean either scrapping the progressive tax system altogether or at minimum closing all of those loopholes that you and I can’t jump through so everyone was at least playing by the same set of rules. As much as we love pie, we think the candles make for a much better economic situation, and much better Paychecks for most Americans, so that’s the way we would go if it was up to us.
The bottom line, though, is that nothing will change unless we change our elected representatives. After all, they’re the ones who make the laws and loopholes, and they’re the ones who can correct them. If you don’t vote for people you trust to make good decisions on taxes, then you don’t really have anyone to blame but yourself when your candle doesn’t go as far as you want it to, or your pie gets lit on fire.
Guess what? The President can only influence federal taxes...but YOUR local & state government reps can influence local and state taxes! Here’s three small things you can do that make a BIG impact:
