If you’re talking about making the tax system more progressive, we guarantee you’re going to
hear the same line over and over: why should rich people be taxed more than everyone else?
There are a lot of well-intentioned people (and a lot of not-so-well-intentioned people) who
think that the fairest tax system would be a flat tax, where everyone pays the same tax rate
regardless of income. In a way it makes sense. If you want a fair tax code, just make everyone
equal. Too bad it’s entirely wrong.
First of all, rich people don’t actually pay a higher tax rate than other people on the same
amount of money those other people make. A billionaire pays the exact same tax rate on his
first $50,000 a year as someone who makes only $50,000 a year. The difference is that the
billionaire pays a higher rate on the additional money he earns in higher tax brackets. So when
rich people complain about their tax rate, ask yourself if you’d rather pay less in taxes if it
meant you took home less money overall? Of course not.
The fundamental reason that we have a tax code with higher taxes for the rich is that not every
dollar is created equal. Well, they’re all minted exactly the same, but you get the point. A dollar
to a poor student or a minimum wage worker has a much higher value than a dollar to a
millionaire. We take more money from the rich and less from the poor because the rich are
more able to part with that money without it negatively impacting their lives.
Imagine two people: a minimum wage worker earning $20,000 and barely surviving paycheck to
paycheck, and a millionaire earning $20 million a year. Let’s consider a flat, 5% tax increase on
both of their incomes. 5% of $20,000 is much, much less than 5% of $20 million, but who’s
going to be more negatively impacted by this change? Obviously the minimum wage worker. To
the millionaire that 5% may mean he’d need to buy a slightly smaller yacht, but to the low-wage
worker, that 5% means rent, food, heat, or transportation.
It’s not hard to understand. We all instinctually know that the rich value their money less, but
for some reason when we talk about taxes some people just see numbers and they lose their
ability to connect them with what those numbers actually mean in people’s lives. We can argue
about the exact proper tax rate for the ultra-rich, but it would be absolutely absurd to tax the
rich and the poor at the exact same rate.