Wednesday, April 30, 2008

Taxing the Poor to End Poverty

Legislation to control our behavior often comes in the form of government tax schemes. Taxes will be raised on certain items to discourage their use (cigarettes, alcohol, etc) and lowered to encourage other activities (education, small business, etc). Most people would agree that these schemes should work, at least in principle.

So let's say they do work -- higher taxes discourage behavior, lower taxes encourage behavior. How then do we reconcile this with progressive taxation (taxing the rich more than the poor)? If we apply the same logic, then we are discouraging people from earning more money, and encouraging them to earn less.

I know the argument: We are placing the highest burden on those best able to bear it. But is this really the best long-term strategy? Those best able to bear the burden are also usually the ones employing those who are least able to bear said burden. As the employer is taxed more, he/she will hire fewer people and pay them less. Those taxes go to the government, and some of that money is "redistributed" in the form of inefficient social programs for those in need. So instead of allowing employers to create more jobs, we instead just take the money and give it to poor people.

I am now leaning towards a regressive tax. I think everyone should pay the same amount of money each year, no matter how much income they earn. Sure, this would be a higher percentage of annual income for poor people, but wouldn't that just discourage them from being poor? And if you did eventually get a raise, you would be able to take a higher percentage of your income home with you (double reward), instead of the current system where you are penalized and put in a higher tax bracket. I would even settle for a flat tax rate, where at least you weren't penalized for earning more.

Now don't get me wrong, I love poor people and I empathize with their plight. Hell, I used to be a liberal. But I think it is much better for a poor person to work for their income rather than have their poverty subsidized by wealthier individuals. These people will not just drop dead in the street if we stop giving them assistance. Survival is a strong motivator, and it might be just the thing these folks need.


Aditi said...

Do you think taxing everyone not on the basis on the income wil work? if a person who is earning 100$ and a peron who is earning 1000$ ..both pay equal tax is it justified?

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