Talk:Progressive tax

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[edit] Questionable interpretations

Implying that Jefferson was as much a supporter of the progressive income tax as Marx is absurd, especially given that the U.S. income tax was not created until 1913. Jefferson proposed no such tax when he was president, so it is hard to believe that he would support such a tax today, and at the very least such an implication is easily debated. Only clear supporters of the progressive income tax should be cited, such as Karl Marx. For a less radical supporter, Keynes would be the textbook choice as such tax proposals are often referred to as "Keynesian".

As for the quote from Adam Smith: "It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

This does not necessarily mean he would support a progressive income tax, as under flat tax systems the wealthy still pay a disproportionate amount of the total share. I also do not think he would appreciate being associated with Karl Marx. The main point here is that questionable interpretations do not belong in such a definition as the point is to explain what a progressive tax is.

—The preceding unsigned comment was added by 68.118.218.191 (talk) 11:49, 16 January 2007 (UTC).

[edit] Merge / Split Restructuring

I'm going to suggest that we break this article into two parts: (1) what it means for a tax to be 'progressive,' and (2) a history of and arguments for and against progressive income taxation. I believe that the first (along with the article Regressive tax) should be merged into Tax incidence, and that the second be moved to Progressive income tax. My reasons for suggesting this are several: (1) it is needlessly repetitive and administratively burdensome to have an accurate economic description of progressivity on this page, Regressive tax, and Tax incidence, and it more naturally fits into Tax incidence; (2) this article contains only information about progressive income taxes, not of any other progressive tax; (3) the article includes a history of progressive income taxes which could be much richer and more globalized and would then deserve an article of its own; (4) both this article and Regressive tax contain statements which suggest that consumption taxes are regressive, even when uniform, which is not correct. See, e.g., Value-Added Taxation: A Tax Whose Time Has Come?, by Gilbert E. Metcalf, The Journal of Economic Perspectives (1995) (for a good introduction to existing research, look at its references). If you disagree with reason (4), as I'm sure someone will, that just makes my point about the restructuring - the debate should be going on in Talk:Tax incidence, not on both the Regressive tax and Progressive tax pages. Danculley 04:19, 11 January 2007 (UTC)

I see Progressive and Regressive taxation different then Tax incidence. While aspects of tax incidence can be determined by these aspects, tax incidence can include much more about where the burden of taxation falls as taxes are applied to business for example. I would oppose a merge into Tax incidence. I wouldn't mind so much a merge of the two Progressive and Regressive articles into one that included (1) & (2). Or perhaps a new article that covers (2) with a summary style addition to each article. The second thought is interesting and I'm still thinking about it. Which article should contain the bulk of this topic with the other having a summary - either way, history of and arguments for and against progressive income taxation would be better in one location with a reference to it from other articles. I agree with (4), however, this is a terminology issue that should be discussed in more detail as such statements are commonly made against consumption taxes. They operate on a different base so any consumption tax is going to be regressive on income using an income base terminology but could be flat or progressive on a consumption base. The terminology is used to twist the percieved effect. Using such, it could be stated that even an effective tax rate of 0% on consumption is regressive as low income earners are taxed on 100% of income. High income earners may pay a much higher effective rate (18% for example) but would be limited to their consumption (say 70% of income). Since some use the income base to determine regressive aspects - in this example the low income earner is taxed on 100% of their income while the high income earner is taxed on 70%. They use the definition of an income tax to determine the regressive/progressive aspect of a consumption tax. Such is decieving in regard to the effect as in this example the effective rate on consumption is 0% for the low income earner and 18% for the high earner, which is progressive. Morphh ^(talk) 05:02, 11 January 2007 (UTC)

Although I still see the progressive/regressive divide as an element of tax incidence, I think there is probably enough content to justify a separate article ("Progressive, proportional, and regressive tax/taxes/taxation"?), so I'll bite. I'm more than willing to put in the time to write something, but I'd like to gather a little more consensus on structure. I'm thinking of dividing it between basics such as the base (income, consumption, wealth) and time-scale (cross-section, lifetime), impact of uniform rates v. exemptions, how to compare progressivity or regressivity of taxes on different bases, and general examples. Thoughts anyone? Also, the title needs some work. Danculley 07:33, 13 January 2007 (UTC)

Sounds like a good structure to me and I'm glad your looking at time scale as well - particularly with consumption as regressive statements are also generally one year snapshots and don't take into account that the income is spent sometime in the future. More consensus should probably be received before any article title changes / merges / moves. I would probably start by expanding one or both of the articles as you've outlined with summary links to the other article for specific areas. Since Proportional tax redirects to Flat tax, we may want to consider changing this redirect into its own article that is more inline with these tax theories. I'd support one article for this topic but I like to merge articles, where others may prefer many smaller articles. Morphh ^(talk) 02:44, 14 January 2007 (UTC)

[edit] Consolidation

I added the automatic stabilizers advantage and the income disparity disadvantage; however, I am worried if the income disparity would violate POV despite its proof, and whether there can be some consolidation between the income disparity, work disincentive, and brain drain sections. Fephisto

[edit] Brackets and revenues

An obvious note to add that would be insightful (and also should be shown in the flat tax article) would be showing the tax brackets with an estimate of the income tax dollars generated by the government by each bracket. So does the wealthiest bracket generate 50% of US Government income tax receipts? 10%? This would illustrate the argument.

I saw some numbers from the IRS at Fox News a couple of months ago, 1% payed 30% of the government expenses, 5% payed 70%, and 50% payed less than 1%. I guess that's from all 130 million tax payers, but I'm not sure. - Jerryseinfeld 01:20, 22 Dec 2004 (UTC)

[edit] Do regressive taxes exist?

Are you sure that regressive taxes do not exist? I can think of several of them. (land transfer taxes, estate taxes). mydogategodshat 03:33, 30 Oct 2003 (UTC)

By the way, your assertion earlier that estate taxes are regressive makes no sense at all to me. In the US (excepting Bush's scheduled abolition of the estate tax in 2010), estates worth less than $1 million ($2 million for couples) pay no estate tax whatsoever, and the tax is thus strongly progressive as a fraction of both income and amount. Steven G. Johnson 08:24, 1 Nov 2003 (UTC)

Actually these numbers make it progressive in regards to wealth, not income. It would be progressive in regards to income if the estate tax rate dimminished with the level of earned income. mydogategodshat 02:46, 2 Nov 2003 (UTC)

Although it is not explicitly progressive with respect to the income of the estate beneficiary, as opposed to the amount of the estate, it's crazy to argue that in practice the incidence is not progressive with respect to income. Low-income people are not often the beneficiaries of $1 million+ estates (except in the movies). No, I don't personally have the data, but be reasonable. Steven G. Johnson

Agreed, wealth progressivity is likely strongly correlated with income progressivity, but this need not necessarily be the case. We don't want to get sloppy. mydogategodshat 02:46, 2 Nov 2003 (UTC)

Maybe on your planet, but on Earth, for any significant population size, no reasonable person would argue that the wealthy don't tend to have higher incomes than the poor. Put another way, you can claim that I don't have proof that people 1000 years ago couldn't fly, and I concede that, but the burden of evidence would be on you to prove such an extraordinary claim. (See also below) Steven G. Johnson

Yes, we both agree that this TENDENCY exists. But there are many examples of wealthy individuals have low incomes in any given period (remember the stock market crash of 2000-2002), just like there are examples of low wealth individuals that have a boost in earned income. mydogategodshat 03:48, 2 Nov 2003 (UTC)

We're not talking about individuals, we're talking about averages; don't be obtuse.

I was talking about both, general tendencies (that typically are highly correlated), and individual instances (which must be looked at in specific detail). mydogategodshat 04:41, 2 Nov 2003 (UTC)

I looked into other jurisdictions and have concluded that we cannot make any general statements about probate tax proportionality: It ranges from very wealth progressive to very wealth regressive. User:Mydogategodshat 01:45, 2 Nov 2003 (UTC)

In the jurisdiction that I am familiar with we pay $15 per thousand for the first $20,000 then $10 per thousand after that. This makes it regressive in regard to wealth. I do not have the data to determine the proportionality in regard to income. mydogategodshat 02:46, 2 Nov 2003 (UTC)

And there's no lower cutoff? Which jurisdiction is this? In most states, the estate tax is set by the credit that can be taken against the federal estate tax, and is progressive with the estate amount (from 0% for estates under $100,000 to a maximum of 16% for estates over $10 million). Again, it's extremely hard to believe that the incidence of this tax will not also be progressive with income. Steven G. Johnson

You are making the assumption that the income of the beneficiary (or the income of the deceased) will be high if the amount of wealth contained in the estate is high. That could be true, but we should not automaticly assume it to be so. mydogategodshat 02:46, 2 Nov 2003 (UTC)

Of course it need not "automatically" be true, but it's crazy to think that it's not true on average. Be reasonable. There's no serious question that the children of wealthy people do not, on average, have higher incomes than the children of poor people. Steven G. Johnson

And before you give me some kind of crap about "sloppiness", let me point out that you should know as well as I that there have been zillions of studies pointing out exactly this correlation. Google for intergenerational correlation of wealth for example. The point is that it's common knowledge, both because it's common sense and because it's been exhaustively studied. You're just being absurd in forcing me to look up such obvious points. Steven G. Johnson

You are making another very questionable assumption. Why do you assume that people leave all their money to their children. When a wealthy estate leaves money to a low income individual, the correlation between wealth progressivity and income progressivity is lost. Likewize, if a low wealth estate leaves money to a high income organization (like a church), again the correlation is lost. mydogategodshat 03:48, 2 Nov 2003 (UTC)

Of course, it's possible for an individual wealthy person to leave all their money to a random homeless person. But you can't reasonably assert that on average, people don't pass on the majority of their estates to children and close relatives (+ charities, but these aren't taxed). Who tend to be wealthy as well. I'm not going to waste any more time arguing with you, because you're just searching for absurd excuses. A reasonable person would simply concede that the average incidence of estate taxes, as they are implemented in most of the US, is progressive with income. Steven G. Johnson 04:03, 2 Nov 2003 (UTC)

You have made a third assumption, that my example is from the US; And a forth assumption, that I do not agree that the average incidence of US estate taxes is progressive in regards to income. My statement was that the US data you gave indicates wealth progressivity. If you want to prove income regressivity, you would need more data than you provided. This involves looking into the details. mydogategodshat 04:41, 2 Nov 2003 (UTC)

[edit] Progressivity v. Regressivity

This article is fundamentally flawed because it misrepresents the nature of progressivity. A tax is progressive if the marginal tax rate is greater than the average tax rate. A tax is regressive if the marginal tax rate is less than the average tax rate. The question of who bares the burdon of the tax is refered to as the incidence of the tax. The incidence of the tax is equivelant to the progressivity of the tax only in the unique case of income taxes. mydogategodshat 07:53, 30 Oct 2003 (UTC)

I suggest either we rename this article [[progressive income tax] and indicate that it does not apply to other types of tax, or we start this article with a section on progressivity in general then add the existing article as a section on income tax progressivity. mydogategodshat 17:28, 30 Oct 2003 (UTC)

If you search on Google for "regressive tax", every single one of the top-10 links defines it in the same way as the current Wikipedia article. Half of these links explicitly give the example of a sales tax as a regressive tax. Similarly, if you search for "progressive tax", 7 of the top-10 links define it in the same way as the current Wikipedia article (of the remaining 3, 2 do not define it at all, and 1 is a broken link). I'm going to remove the "disputed" header unless you can provide some shred of evidence that there is an error. Steven G. Johnson 19:29, 30 Oct 2003 (UTC)

Furthermore, according to the www.amosweb.com economic glossary, tax incidence describes who actually pays a tax, as opposed to who is officially being taxed: e.g. sales taxes officially apply to the merchant, but the merchant passes them along to the consumer. The term can indicate a lot more information than just the progressivity (or a lot less). (By the way, "burden" is spelled with an "e", and it's "bear" not "bare", and ... oh, just get a spellchecker.) Steven G. Johnson

We are getting sloppy. I guess this will have to do. Not too many people will be using Wikipedia for serious public finance research. mydogategodshat 02:20, 31 Oct 2003 (UTC)

In other words, you don't have a shred of evidence. I'll remove the disputed notice. Steven G. Johnson

Progressivity, proportionality, and regressivity are ways of categorizing a mathematical relationship. They describe the change in the tax rate as the base amount varies. The relationship is progressive if the marginal tax rate is greater than the average tax rate. The relationship is regressive if the marginal tax rate is less than the average tax rate. So if the income tax rate (as a percentage) increases as the base amount (ie: taxable income) increases, then the tax is progressive. Up to this point I think we both agree.

The controversy arises when we start applying these principles to other taxes. This is because in addition to the simple proportionality calculations we also tend to create cross calculations. Take for example the case of an excise tax: In addition to the simple proportionality calculation (does the rate increase or decrease as the base amount of taxable wealth varies), we also might want to know how varying the base amount will influence the incidence of the tax with regard to income, age, wealth, personal/corporate, etc. I have looked at three Public Finance textbooks that I have on my shelf (Musgrave & Musgrave; D. Hyman; and O Eckstein) and they are inconsistent with their naming conventions. Sometimes they reserve the terms proportionality, progressivity and regressivity for simple proportionality calculations and do not use them for cross calculations. Sometimes cross calculations are given specific names like “income progressivity” or “age progressivity”. Sometimes they used “incidence terminology” (for example “at the margin, the incidence of dividend tax falls on . . .”). mydogategodshat 06:55, 1 Nov 2003 (UTC)

Okay, so in the specific context of, e.g., an age-incidence analysis, calling a tax progressive can refer to e.g. increasing rates with age and not income. It's may be worthwhile noting this in the article (and of course, "progressive" is a normal English word that can be used in lots of ways), but you have to admit that it's the exception. Outside of technical literature especially, the terms progressive tax and regressive tax, by themselves, refer universally, as far as I can tell, to progressivity of the incidence as a fraction of income. Furthermore, this is even the case with the technical literature that I can find: I did a search for "progressive" in the National Bureau of Economic Research Working Papers (NBER) database, and all taxation-related references that I could find (I got tired after skimming a dozen papers) were either explicitly for income tax or (in four cases) referred to progressivity of incidence as a fraction of income. Even more significantly, they did not take any pains to explain what they meant: they simply assumed you understood it to mean income incidence when they called (in one example) cigarette taxes "regressive" (I had to verify this interpretation by close reading of the context). It is indisputable, in any case, that the previous Wikipedia entry was highly misleading, because it failed to capture the most common popular use of the term (it called sales tax a flat tax, for example). Steven G. Johnson

[edit] Neoliberality?

"Tax systems have to balance the need for income to pay for government services with the problem that too much taxation represses the economy as a whole, although the exact nature of this relationship is hotly debated."

A true fact in neoliberal economic theory, not true in many other theories. BL 05:43, 31 Oct 2003 (UTC)

How is it "neoliberal" to suggest that spending requires income? Or are you suggesting that governments can (or do?) provide no services? In that case, the needed income is ~0, and the above statement is still true. Of course, tax systems can be out of balance; is that what you object to? It's not like the statement said anything about what the appropriate level of services should be (which, of course, is quite controversial), or whether the services desired are being purchased as efficiently as possible. Steven G. Johnson 05:57, 31 Oct 2003 (UTC)

Anyway, I've left it out because discussion of taxation levels as a whole is really independent of progressivity. Steven G. Johnson

[edit] Personal Income Tax Brackets?

Where did they go? - Jerryseinfeld 20:22, 7 Nov 2004 (UTC)

Dunno. They're back now, anyway. Ellsworth 23:17, 10 Dec 2004 (UTC)

That new 'Wealth And Taxes' image seems a bit overly political in its message, and doesn't really contribute to any points being made in the section. The chart has more to do with comparing the effects of presidential policies on taxation of the wealthy than it does on personal income tax brackets. The originating article (non-WSJ copy, for those without a subscription) also sounds quite left-versus-right in tone. It's interesting, but I think it's also out of place here and should be removed; I'd like more of a consensus than my single opinion, however. - Fishbert 07:39, 12 December 2006 (UTC)

I added the image but was looking more at the table below the presidential bar chart which shows amount paid as a percentage of taxes and then the amount of income earned from that same group. The thought in adding the chart was to show the progressive tax system as it shows tax incidence is disproportionately shifted to those with higher incomes (Top 0.1% earning 9.1% of income but paying 17.4% of all taxes - Bottom 50% paying 3.3% of all taxes). I expect the WSJ is the original and the link you provided is a copy with the left vs right tone of the article being irrelevant IMHO. The image is what it is. If I could find the original source from the Treasury Department, that might be better with less opinion tied to it as a source (though we have not included such opinion with reference to it). I'm fine with the image being removed as I think the entire United States section should be condensed into a summary style that references "Income tax in the United States". This article now contains this data (which I think is more appropriate), so for non-duplication sake - we should condense this section and refer to the other article. However, if we're going to keep the section as is... I think it is a valid image for illustrating progressivity in the U.S. - though perhaps it could be cropped to remove the history if you think it is POV. Either way.. I'm not tied to it - I just thought it was relevant and may work with the article. Morphh ^(talk) 14:24, 12 December 2006 (UTC)

The original source of the data is the DoT/IRS, but I suspect the image itself was authored by the Wall Street Journal as an illustration of that data presented in a manner which supports the claims made in the original article (I don't have a WSJ subscription, so I can't compare the original to the copy I linked to, so please correct me if they are not the same text). My stance is that the image by itself conveys political opinion, and my mention of the subject of the originating article was merely to show a consistency between the two (if there was no consistency, it would have been fair to say I was reading too much in to the image). Your reasoning for adding the image, "to show the progressive tax system as it shows tax incidence is disproportionately shifted to those with higher incomes," does seem more in keeping with the lower half of the image, but even then I'd argue that perhaps the image (and the thought behind adding it) may fit better in section 3, Arguments against implementation. - Fishbert 19:28, 12 December 2006 (UTC)

I tend to agree that the section should be condensed and reference "Income tax in the United States". When I edited the brackets in that article, I had no idea the information was duplicated here until you copied over the changes. I've been playing along with the status quo, but I honestly don't see any reason to maintain two copies of the same. I would change this myself, but it'll have to wait for later -- I've already devoted too much time to this discussion section while at work. =) - Fishbert 19:36, 12 December 2006 (UTC)

Ok.. I've made an attempt at this... However, my browser crashed just as I was about save... go figure. So, I think this version is a little less then my first. But anyway... enough for today. Morphh ^(talk) 03:31, 13 December 2006 (UTC)

[edit] Introduction

A progressive tax, graduated tax, or fair tax

Why not? That's not POV, that's what I call it.--Jerryseinfeld 00:59, 8 Jan 2005 (UTC)

And right-wing people call it something else. Progressive and graduated tax is what many people call it. Fair (and unfair for regressive) tax is only what a few people call it. I gave some thought before reverting because I heard the "unfair" moniker to describe regressive tax, but the fair and unfair terms aren't used in economics (unless you're talking... extreme economics), and only received one or three google hits. --Death phoenix 05:35, 8 Jan 2005 (UTC)

Actually, I was thinking of a "flat tax", but that's obviously not this article. I'm beinning to pick up the George Bush "freudian slip" or whatever it's called. What I meant was that it would be pretty funny to introduce flat tax, with, "a flat', simple, effective, and fair tax".--Jerryseinfeld 20:05, 12 Jan 2005 (UTC)

Oh, I see. I wonder if there's a term for a George Bush freudian slip. Maybe it's called a "Dubya slip", or perhaps Dubya speak. --Death phoenix 19:14, 13 Jan 2005 (UTC)

[edit] Europe

Since I'm predicting that some communist pharisee will remove this I'll place it here to.--Jerryseinfeld 20:24, 12 Jan 2005 (UTC)

To receive 191,720 kronor ($27,000) for a years work, the tax cost for the firm is 247% of that, 473,280 kronor (including the "social security" tax of 33% on top of the 62% of income tax). To emphasise, for every $1 the working person claim as income, the government claim an income of $2.47. This is because of the belief in all western european countries except the Republic of Ireland that humans are random protoplasm that belong to the state. That humans are not created with ability, aptitude, competence, talent, ingenuity, comprehension, sense, and reason to self decide what to spend their money on.

Well, if it had that Ayn Rand crap pulled out of it, I wouldn't have deleted it. But feel free to rant as much as you want on the talk page. grendel|khan 08:25, 2005 Jan 14 (UTC)

Ayn Rand, really? What did she say?--Jerryseinfeld 19:12, 14 Jan 2005 (UTC)

Not in the sense of a direct quote---it's something I feel would go along with her "man as a heroic being" idea, combined with her perception of taxation as morally equivalent to slavery. grendel|khan 00:56, 2005 Jan 15 (UTC)

I tried to calculate the government claim on a $27,000 after tax annual income, is this correct that it's 30% in the US and as much as 250% in Europe? What a bunch of losers.--Jerryseinfeld 15:51, 21 Jan 2005 (UTC)

Note: I changed "after tax income" to "after-tax income" in both of your examples, as I believe "after-tax" is a compound (or hyphenated) adjective that modifies the "income" noun. However, feel free to revert if it is commonly referred to without the hyphen in accounting texts. --Death phoenix 05:31, 30 Jan 2005 (UTC)

I am sorry but this calculations seems to be seriously flawed. I am not an Tax expert (so I won't correct it) but if you get a result of 30% in the US you should get one of 50% or 60% in Sweden but not meep 270 meep. And a comment on "citizens get a whole lot more from the swedish state than form the US state" comment would be good as well. And also don't confuse Taxes, Rents and Healthcare. --Ulrich 11:57, 28 Apr 2005 (UTC)

Yes the swedish example is wrong in several ways; some of the calcualtions are wrong and swedish "social security" tax is not 33 %. And why 190 000 kr after tax? Very few people in Sweden earn that much. The whole example seems to be non-NOPV 23:13, 18 May 2005 (UTC)

I read on Sweden's tax site that the median income is around 250,000 kr. Therefore, 190,000 kr after taxes should be a reasonable number, especially since they are examples to illustrate progressive tax structures. Given that the income is the same for all the examples, it would be difficult to lower it any more, because the amount is already slightly less than the median income in the United States (http://pubdb3.census.gov/macro/032004/perinc/new03_001.htm). Would a more fair example compare percentiles within each country as opposed to a constant amount? Such as giving an example for a person earning in the 10, 25, and 50th percentiles?

If the median is 250 000 kr before, then you should not use 190 000 kr after taxes (since 250 000 kr before taxes don't implies 190 000 kr after taxes). And since the "social security" tax, as I said, is lower than 33 %, I am deleting the example. If someone can make a correct one, feel free to do so.

[edit] Massive quotation

A large slab of Austrian school economics seems to have been quoted verbatim in the "arguments against" section. I'm not sure that this is the best policy, as this page is probably too short to give an equal hearing to every thinker on the subject over the past 120 years. Should this not be paraphrased?

If it is not possible to reduce the size of the quotation, It is probably best to give it quote marks to ensure that it is clear what the source is.

I would have contacted the user who added this block directly, but unfortunately their user page is red.

Any thoughts?

Wragge 03:42, 2005 Jun 7 (UTC)

By the way, I have added a few footnotes, and this earlier modification removed the citation without removing the note itself, so I've had to add that part back in (although it is now in the correct section). Please be aware of footnotes when deleting text.

It would be nice to replace the giant quotation block and blocks of text with bullets, like we have now for the arguments for the income tax. Here is my first stab at making the bullets, based upon my limited understanding of the arguments:

- Progressive Income Taxes reduce investing. Due to the same diminishing marginal returns cited as an argument for the income tax, the wealthy are more likely to invest a larger portion of their income. Due to the fact that investment generally results in productivity gains, a decrease in investment would cause real wage growth to stagnate or even decrease.
- Progressive Income Taxes are a disincentive to work. By forcing high earners to pay more tax, it is encouraging those same works to stop working. This feeds back into the first argument, as that the wealth held by the rich would decrease. The disincentive to work has been backed by econometric studies.
- Progressive Income Taxes may encourage emigration because taxes are not internationally harmonized, so very high earners are sometimes able to use relocation in order to pay less tax

Would fairness be another potential argument? Something along the lines that while the top 5% in income in most countires pay over half the taxes (http://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html for the United States which according to some sources is not very progressive), theoretically, they only have 5% of the vote to influence how it is spent.--Techieman 05:04, 7 Jun 2005 (UTC)

I think that this would be a clear way of breaking down the arguments, in a way that allows extensions in future. Many small arguments seem to be more maintainable with multiple editors than a single dense argument, however well expressed. It is probably easier for the lay-reader to get to grips with as well. As for the arguments above, I think they are are all credible and that they should be given. I especially like the last argument (which hasn't been given in any form at the moment). After all, this is the other side of the inequity aversion driving high progressive taxes. If "fairness" is to be given as a pro-progressive argument it should also be advanced against progressivity shouldn't it?

Actually, this is such a good point, that I'm going to put it onto the main page now. Remember to be bold in making updates, even if footnotes are accidentally lost, that's not a big problem.

Thanks for reading - Wragge 21:30, 2005 Jun 7 (UTC)

I apologize for creating the impression that that block of text was a direct quote. It is a paraphrase--perhaps not a very good one. The text is my distillation of a 200+ page book. Unfortunately, I have never encountered a good translation and the book is very dense. Anyways, von Bohm-Bawerk deserves the credit for the ideas. And calling it the classical argument deserves some qualification--I'm sure von Mises for instance has an alternative. I will examine my copy of his work on socialism to see if he has a cleaner articulation. --Pearlg 06:42, 7 Jun 2005 (UTC)

Sorry, Pearlg, I haven't read any complete books on economics pre-1930, so I was just guessing that this was a quote based on the formatting. By the way, why do you have a red user page? Don't you want people to contact you?

[edit] Another question

Since you (Pearlg) seem to be a serious Austrian I wonder if you can answer an off-topic question that has been puzzling me: Is it a paradox that Austrian economists volunteer their time to contribute to Wikipedia, when their credo is based around the impossibility of achieving anything without money prices? I'm sure that the Mises institute has a good answer, but do you have any thoughts?

Thanks for the prompt replies, Wragge 21:19, 2005 Jun 7 (UTC)

Sounds like you are confusing the Austrian school with Ayn Rand's horrible philosophy... but more seriously: I think if you perceive a contradiction you've been reading a gross misrepresentation of Mises's argument. First, you have to understand what money is (to Mises) and to do so you should read his Theory of Money and Credit. I'll summarize and say: no one wants to hold money. Money exists only because of uncertainty in our desires. For example, I don't know what I'll want for dinner so I'd prefer to be paid money rather arrange fixed contracts where I agree to work in exchange for another specific good. (Money is money because it is a commodity that is 1) worthless in itself 2) fungible 3) durable) Okay, so please discard the word money from your question. Prices are a relative value of goods, like a cow is worth two pigs. Prices communicate information about what people in the aggregate feel the relative value of goods is. (as opposed to say how I particularly feel about cows versus pigs because I don't like beef). This information tells me that if I am able to breed cows or pigs but I really want corn, how many cows or pigs should I breed to get the corn that I want. Without prices, I cannot know this because I have only my own judgement of their relative worth.

[Fair enough - I shouldn't have said "money prices", but prices - Wragge 02:27, 2005 Jun 8 (UTC)]

So, the point of the calculation problem is not that services cannot be performed without prices and the exchange of money. My decision to contribute to wikipedia happens to depend only on my person sense of what contributing to wikipedia is worth to me versus other activities I could be doing. I'd run into a problem though if what I really wanted was pear trees and I had a vague idea that someone would give me pear trees in exchange for posting on wikipedia. How can I make a decision in that context? I can't. I might overproduce wikitext and get fewer pear trees than I wanted. Maybe I should have been writing papers instead...

[I may have created a straw man who contends that nothing can be achieved without a price system - leisure activities do not require prices, of course. - Wragge 02:27, 2005 Jun 8 (UTC)]

As a side note, I'd say that the calculation problem is not the credo of Austrian economics but a derivative result and the school is not entirely monolithic... The Austrian school is more easily characterized by the belief that economists were being led astray by the use of improper mathematical models that implied too many fictitious behaviors. They and, Mises in particular, tried to reason about economics using only a few very simple monotonicity assumptions that could be easily verified in historic records.

[I must admit, I had thought that all Austrian school thinkers followed praxeology and couldn't care less what the historical record said. Perhaps I have been lead astray by relying on second-hand interpretations rather than digging into serious books. - Wragge 02:27, 2005 Jun 8 (UTC)]

I don't know that was Austrian per se. It is certainly von Mises, but it is wrong to say praxeology means he doesn't care about the historical record. It means that he depends on having an argument for believing in the trend and tries to _rely_ on a s few trends as possible. An interesting example: consider a plot of inverse money velocity versus interest rates. On a small time scale (say 10 years) the plot of 1/v versus i slopes one way. But if you examine averages for various decades the plot appears to slope the other way. The reason for this is other factors are driving the bias the plot over a long time scale. So, it would be a mistake to conclude that 1/v and i have the relationship that _seems_ to appear on the long-time scale. Unless you can reason about why the plot may go one way or the other, the data is misleading. --Pearlg 06:44, 8 Jun 2005 (UTC)

I assume your remark about not reading economics books before the 1930s reflects your idea that Keynes revolutionized the field. That is a bunch of exaggerated politics. *at best* keynes effectively attacked the Cambridge school in which he was brought-up--but the Cambridge school was already very much discredited before Keynes came along. Saying that he refuted classical economics, as many do, is a sort of ridiculous abridgement because classical economics in no way refers to a particularly coherent regime of economic thought. See The Failure of the New Economics by Hazlitt to get an alternative perspective of how Keynesian doctrine fits into the evolution of economics.

I should look into making a user page. Thanks for mentioning that. p.s., I am not a serious Austrian but I have recently been reviewing their work. --Pearlg 23:48, 7 Jun 2005 (UTC)

Thanks for a thoughtful answer. By the way, the real reason I haven't read anything before Bertil Ohlin is that its very hard going, and I'm lazy. I noticed that Mises.org had a special offer on some of their books today - I thought about buying them - but I haven't done it yet.

Regards, Wragge 02:27, 2005 Jun 8 (UTC)

[edit] Econometric studies

I looked at all the econometric evidence regarding high tax rates and work incentive in my EcoTax class and the general conclusion (from studies among people who are able to choose their hours of work) is that the income and substitution effects essentially cancel each other out for no net effect. Unless someone substantiates the disincentive claim I'm going to delete it. Psychobabble 03:39, 8 Jun 2005 (UTC)

You may say that current evidence suggests that in the specific societies studied at particular time periods (give citations) "such and such" It would be improper to say that those econometric studies dismiss the theoretical argument because I'm nearly certain that it is not possible to scientifically conduct an experiment which would let you make that assertion at a reasonable statistical confidence level to discredit the theoretical argument. I will of course review the citations you post to see if they've done something I haven't thought of... please see for your own reference Hasty generalization, Ecological_fallacy (especially), and Dicto simpliciter --Pearlg 06:33, 8 Jun 2005 (UTC)

[edit] Improve, rather than delete

This is an excellent example of why a hasty generalization is better than "no comment": it puts the subject in play, even when the assertion is false. Before I added the mention of econometrics the only mention of disincentives was the assertion that "progressive taxes may be a disincentive to work harder" - which is the folk wisdom in much of the discourse. I suggest that the solid econometric research in the field by quoted to provide some context and evidence for holding one view or the other. I appreciate that von Mises might prefer reasoning without time-limited evidence (see preceding question) however - most readers would like much as much real evidence as possible (I have a fondness for broad generalizations.)

Wragge 09:58, 2005 Jun 8 (UTC)

In case I wasn't clear, I do feel that it should be mentioned what current econometric studies say. It just is not appropriate to consider them conclusive. Very few arguments are conclusive and there are good reasons to particular doubt econometric studies---which I might mentioned are the study of fictious aggregates. See the very good article by Dr. VI Arnold: [1] particularly relevant is the point beginning:

At this point a special technique has been developed in mathematics. This technique, when applied to the real world, is sometimes useful, but can sometimes also lead to self-deception. This technique is called modelling. When constructing a model, the following idealisation is made: certain facts which are only known with a certain degree of probability or with a certain degree of accuracy, are considered to be "absolutely" correct and are accepted as "axioms". The sense of this "absoluteness" lies precisely in the fact that we allow ourselves to use these "facts" according to the rules of formal logic, in the process declaring as "theorems" all that we can derive from them.

--Pearlg 19:34, 8 Jun 2005 (UTC)

You're right, your weasely characterisation is better than me simply deleting it. I am familiar with the theory of modelling, I studied economics for 3 years and I did a HET class in which I studied a lot of the debates over this sort of thing in the late 19th and early 20th century. I'm afraid I've thrown my EcoTax notes out, but they did include an extensive literature survey and there were about 2 or 3 studies which each showed either a +ve or a -ve effect, but the majority (about 5 good ones, iirc) showed that the income and substitution effects cancelled each others out, which is also a plausible theoretical hypothesis. I might write in somehting about the income effect as it is generally ignored in common discourse. Psychobabble 22:59, 8 Jun 2005 (UTC)

[edit] comprehensive tax

what is this? is it the opposite of progressive tax? i cant find comprhensive tax on wiki. and somebody should put this on List of economics topics. dont have time right now. --Jaysscholar 07:25, 8 November 2005 (UTC)

i hate it when you type something on a wiki talk page, and noone responds --Jaysscholar 19:59, 20 November 2005 (UTC)

[edit] More balance

Currently, the section summarizing the arguments against tax progressivity is about three times as long as the section summarizing the arguments in its favor. This does not reflect the actual balance of opinions regarding progressive taxation, and it should be adjusted so as to not violate NPOV. Firebug 05:52, 5 December 2005 (UTC)

The fact that one side's argument is longer than the other side's is not a violation of NPOV. What does it matter which is longer? Sometimes a more pursuasive argument can be made in one sentence than with a whole paragraph. RJII 06:07, 5 December 2005 (UTC)

[edit] Adam Smith and progressive tax

Firebug is mentioning Adam Smith is "alluding" to a progressive income tax. But he's not. Charging a higher tax to a person with a higher income, through charging a higher toll, is not necessarily taking a higher percentage of his income. Rather, it's equalizing what would otherwise amount to a regressive tax on income. RJII 06:28, 5 December 2005 (UTC)

I added an additional quote justifying the statement that Smith favored progressive taxation. Furthermore, the statement specifically advocates that luxury coaches be taxed "higher in proportion to their weight, than upon carriages of necessary use", which is clearly progressive taxation. Progressivism need not be limited solely to income taxation (which wasn't the primary source of government revenue in Smith's day, in any case). Later in the same essay, Smith argued that members of society should pay taxes "in proportion to their respective abilities". Again, this is clearly a defense of the principles of progressive taxation, when taken in conjunction with the quote above. Firebug 06:51, 5 December 2005 (UTC)

That's not what a progressive tax is. A progressive tax means the percentage of income taken increases with increases in income. If you charge a ten dollar tax to a person that gets a $100 paycheck, and a one hundred dollar tax to a person that makes $1000 paycheck, that's an increase in absolute tax only ..not in percentage. Therefore, it's not a progressive tax. RJII 06:58, 5 December 2005 (UTC)

If you charge a luxury coach a toll of 20 cents per pound, and a "carriage of necessary use" a toll of only 10 cents per pound, that's a progressive tax. And that's what Smith is advocating here. Firebug 07:03, 5 December 2005 (UTC)

That's not a progressive tax but a flat tax. A luxury car coach is driven by a wealthier person so he pays a higher tax, in order that the poorer person doesn't pay a higher percentage of his income. RJII 07:07, 5 December 2005 (UTC)

You are playing games with words here. The tax Smith describes is progressive in and of itself, regardless of whether it is counterbalanced by other, more regressive taxes. Furthermore, you have provided no source for your assertion that the progressive tax was invented by Karl Marx. This is merely an attempt to smear a concept you don't like by guilt with association. Good old fashioned McCarthyism. Firebug 07:16, 5 December 2005 (UTC)

No, that's not a progressive tax in and of itself. There is no such thing. A progressive tax is related to income. I put the Marx statement there because it's the earliest explicit advocacy that I know of off the top of my head. I haven't done any significant research on the matter, nor do I have the inclination --it's a boring topic for me. If you know of an earlier instance, then by all means change it. RJII 07:26, 5 December 2005 (UTC)

Interesting, then, that you made 6 edits to the article and 8 to the talk page in one night. If you find it so boring, perhaps you should edit other pages instead. Firebug 07:31, 5 December 2005 (UTC)

Good idea. I'll take you up on that. Have at it. RJII 17:22, 5 December 2005 (UTC)

Adam Smith and Jefferson should not be cited as supporters of the progressive income tax as they never spoke of it.

These are bad interpretations of both Adam Smith and Thomas Jefferson. In no way does these suggest that these are progressive by today’s definition. In fact, in their time, Free Market Capitalism was progressive. Today no one but libertarians believes this. The interpretation here is bad. (CosmopolitanCapitalist 15:38, 16 August 2006 (UTC))

[edit] Removed section

I removed this section because it has incomprehensible punctuation and grammar, not to mention going against the obvious mathematical and emperical fact that progressive taxes grow the middle class, while regresive taxes shrink it.

Whoever "you" are (please sign your talk edits), I must disagree with you. It is not "obvious", either mathematically or empirically, that progressive taxes "grow the middle class" or that regressive taxes "shrink it." In fact, it is much contested. See Byrnne, Donna M., Progressive Taxation Revisited, 37 Ariz. L. Rev. 739 (Fall 1995). My personal guess is that the details of a tax scheme would likely matter more in this respect than whether it was generally progressive or regressive. Moreover, if a progressive taxation scheme reduced allocative or dynamic efficiency sufficiently (as it may or may not do), the income-reducing effects may very well outweigh the effects of redistributing the tax burden. If you research and then cite your sources, you will not make this mistake. Your removal of the section below, however, was still appropriate. It appears that the section did not cite its sources and was probably original research. Danculley 02:03, 16 January 2007 (UTC)

[edit] Progressive taxes increase income disparity

Assuming that the labor market is split between high-income workers and low-income workers because of differences such as education, and other amenities, opponents of a progressive tax argue applying a progressive tax will have the following sequence of event on the high-income market:<

On the individual level high-income workers' costs increase
Because of the loss of profit there is an incentive to leave the high-income market
Supply of high-income workers decreases
Because of demand's inverse relationship between quantity and price the result is a higher price for the fewer high-income workers.

And the following effect on the low-income market:

On the individual level low-income workers' costs decrease
Because of the rise in profit there is an incentive to enter the low-income market
Supply of low-income workers increases
Because of demand's inverse relationship between quantity and price the result is a lower price for more low-income workers.

Therefore the end result is fewer higher-income workers and more lower-income workers which increases income disparity. However, the argument rests upon the concept that progressive taxes will create an incentive strong enough to leave and respective the high-income and low-income markets respectively. It thus has to overpower the perceived benefit as argued by proponents of allowing low-income workers to gain entry into the high-income market, an incentive in itself.

[edit] A brief history of U.S. Federal income tax rates and brackets

One way to define progressivity is to say that the number of income brackets is relatively large, and that the rates applied to each income bracket increase as income increases. Here is a partial history of changes in the U.S. Federal income tax rates (and the income brackets) since 1979:

Year 1979: 15 income brackets; rates ranged from 14%-70%

1982: 12 brackets; 12%-50%

1987: 5 brackets; 11%-38.5%

1988: 3 brackets; 15%-33%

1991: 3 brackets; 15%-31%

1993: 5 brackets; 15%-39.6%

2001: 5 brackets; 15%-39.1%

2002: 6 brackets; 10%-38.6%

2003-2005: 6 brackets; 10%-35%

Source: Internal Revenue Service, Instructions for Form 1040 (for each year listed)

For what it’s worth, I believe the highest marginal tax rate in the early 1950s was above 90%.

Yours, Famspear 16:05, 13 April 2006 (UTC)

Post-script: I have now added these data items to the article itself. Yours, Famspear 19:25, 13 April 2006 (UTC)

Another post-script: I have added a chart showing the rates imposed on a single individual by the 1954 Code to the article on the Internal Revenue Code of 1954, with a link from this article. The highest tax rate in the 1954 Code (for single individuals) was 91%. Yours, Famspear 22:34, 19 April 2006 (UTC)

[edit] Contradictions in interpreting early liberal thinkers

I am removing this section. First of all it makes no real sense. Second it seems more like an attempt at original research than anything else. Remember that interpretations also need sources, otherwise they are considered original research MartinDK 18:53, 9 November 2006 (UTC)

[edit] United States: Example of a tax computation

- This is wrong. Taxes aren't taken on gross income; they're taken on taxable income, which is (loosely) gross income minus deductions and exemptions. Those deductions and exemptions basically ALWAYS reduce the taxable portion of income by more than $8000. If this were a single filer, the example of $30,000 of gross income would yield at least a standard deduction of $5000 and a personal exemption of $3200. (Spouses and dependents would decrease taxable income even further.) That would take taxable income down to $21,800. Then the first $7300 of THAT would be taxed at 10%, and so forth. If the example is meant to demonstrate the 25% rate, it needs to be changed, because no $30,000 earner would hit that rate with the aforementioned deductions. - Also, this also seriously changes the % taxed. For a $30k gross income, $2905 would be paid in income taxes ($7300 at 10%, $14,500 at 15%), for just a 7.25% average rate -- far less than the 13.88% calculated here. - Posted by IP 216.86.210.26 in the article - moved to talk

[edit] POV

The pro-progressive tax section lists absolutely NO arguments against it. However, the anti-progressive section is full of counter-arguments. This article reads like a paper with a thesis of progressive tax = good. —The preceding unsigned comment was added by 68.34.98.202 (talk • contribs) 05:57, 3 December 2006 (UTC).

I reworded the intro - probably need to add a second or third paragraph that summarizes the article. Would be nice to get a graph of a progressive rate. We should also add something on progressive consumption taxes (using rebates)[2] and attempts to make sales taxes progressive (exempting nessesities and increased tax rates on discretionary and luxury goods).[3] Morphh ^(talk) 02:13, 4 December 2006 (UTC)

[edit] Bullets

There are too many bullets on this article. We should try to decrease the bullets in the sections "Reasons to implement progressive tax" and "Arguments against implementation of a progressive tax" and turn these into paragraphs. Morphh ^(talk) 14:30, 4 December 2006 (UTC)

[edit] Income tax brackets

The United States section should be condensed into a summary style that references "Income tax in the United States". This article now contains this data (which I think is more appropriate) so for non-duplication sake - we should condense this section and refer to the other article. Morphh ^(talk) 14:34, 5 December 2006 (UTC)

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