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Shouldn’t Progressives Favor Regressive Taxation and Penalties (i.e. higher percentage burdens on the less well off)?

We are often fed the idea that by virtue of our birth into “society” that we are all bound by a social contract, irrespective of whether we know about it, or are in favor of it. Part of this social contract is that “we” have an obligation to serve our fellow men, and since we are too selfish to do it voluntarily, we must be prodded with a spear and led at gunpoint to “volunteer” our services in this endeavor.

Aside: of the $20,000 of my wealth that was expropriated from me last year, how much do you think ended up “helping” my fellow man? How much of that would I have helped my fellow man with had I been allowed to keep that what was rightfully mine?

Progressives who presumably drafted the social contract argue that those who earn more (actually, produce more is the right word, by let’s not bog down in semantics yet) should be obliged not only to pay more to help their fellow man, but to pay proportionally more as well. This is doubly progressive. Not only should the guy earning $900,000 pay more in absolute dollars than the guy earning $90,000, but he should he pay proportionally more. As we get richer, our obligations to our fellow man INCREASE in value. So, being twice as rich forces you to be more than twice as generous to the rest of society. Being ten times as rich requires you to be more than ten times as generous toward the rest of society. And there is no limit to your obligation to the rest of society – none whatever. The more you earn (produce) the more you owe and in a larger and larger share.

But here is where the Progressive position gets really awkward (as if indefinite slavery is not bad enough). Suppose for a moment how the Progressives view tax evaders. They are accused of not doing their part, being greedy and selfish and all manner of horrible things. Absent any legal witholdings, by laundering income and not paying taxes a person who earns $900,000 will be avoiding the payment of $289,837 in federal income taxes (ignoring all of the other taxes he must pay) if he avoids all taxes. Suppose he reports some of it, so that he pays only $89,837.

I could easily be that guy. I used to be an investment banker, and had I remained on the job I would be earning roughly that amount today. Instead, I decided to leave that world in pursuit of a “nobler” (i.e. self serving) profession – teaching. I took over a zero off of my annual salary, and well more than two zeroes off of my lifetime wealth. Suppose I make $90,000 today instead of the $900,000 I could be making. I work no less hard today than I did when I was a banker – in fact, I think I work harder. But ignoring other tax breaks, someone at $90,000 of salary generates $16,256 in federal income taxes.

Who is the tax evader?

One reason I do not work on Wall Street anymore (not the only reason) is that I refuse to have that much of my wealth confiscated smugly by the elitist do-gooders out there (many of who make as much money too). So, I am no different than the tax evader. In fact, I am worse.

Worse you ask?

Yes. The rich investment banker does not steal his income. That is earned. And how do you earn income? You do it by producing goods and services others value. So in this case, Rizzo the banker would be producing $900,000 worth of stuff society values, and in addition, society “gets” an additional $90,000 in federal income taxes from me (even as I evade $200k of it). In the latter case, when I earn $90,000 as a teacher, I produce roughly $90,000 of goods and services that other people desire. And in addition, society “gets” an additional $16,000 in federal income taxes from me.

So, as a greedy investment banker, the rest of society enjoys $810,000 worth of more goods and services than exist than when I am a teacher. Further, society enjoys tens of thousands of dollars of less tax revenues when I became a teacher – every year. But remember, I honestly paid my taxes as a banker. If I had earned $900,000 per year for the next 30 years (a very conservative assumption) and paid even $200,000 per year in taxes versus what I am doing now, I would have generated $24.3 million more in goods and services for the rest of society than if I stayed a teacher, and at least $5.5 million in additional federal income taxes than if I stayed a teacher until age 65.

Don’t we have a responsibility to our fellow brothers and sisters to contribute to the best of our ability? If so, then it is not at all clear why I am normally celebrated for pursuing a noble teaching endeavor, yet me, as the same individual, would be villainized for being a banker. But now, I am seen as virtuous for leaving the oppressive corporate world, and doing more good for society by entering a noble profession.

In fact, I am a societal shirk, and a hack moralist. You should tax me MORE … and perhaps imprison ME for tax evasion. It is not at all clear why we condemn the rich. Even the tax evaders among them. The tax evading athlete provides entertainment and enjoyment for untold millions, and generates hundreds of jobs in support of what he does. The Wall Streeter helps move capital from people who want to save it to those that wish to invest with it. The rich small businessman invents products that improves untold numbers of lives. Do I make capital available to others? Do I provide entertainment enjoyment for millions? Do I invent products that improve lives? Nope. I just tilt at windmills. And contribute far fewer in tax revenues to boot. I have the talent and drive to generate more – the evidence is that I used to be a banker, and the guys that were hired with me are making high 6 or into 7 figures now.

So why do I get to avoid the tax and prison penalties and societal shirking when I am doing far less for society than those typically scorned? Please do tell. And I’ll enjoy seeing the attempts to unfry this egg.

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