Comment Re: Truckle up economics (Score 1) 277
Fairness is hard to define. The income effect is such that each marginal dollar has less value: $1 more than $1,000,000 is worth less to a person than $1 more than $1,000.
Although that's backed up by empirical data, the simple thought experiment for this (hey, I'm an economist) is just a look at your purchasing scale. If you have no money, any money you get goes to food, rent, and other basic needs--you need this shit to live! Further money goes to luxuries like television. When you're a millionaire, it goes to more luxuries; but consider: someone making $50,000 can afford a $200 restaurant meal regularly, but they don't do that because they'd lose the ability to buy iPods and fancy phones. The expensive food has less value to them than the things they buy with more income.
So now we have three types of fair/unfair taxes.
First, the flat tax. Everyone pays e.g. $1,000. Well some people can't pay it, and it takes more of the working-hours of the poor than it does of the rich, as well as offending the income effect above.
Second, the proportional tax. Everyone pays e.g. 10%. Everyone is paying the same labor-hours now, but some people are getting more for those labor-hours. They're still keeping tens of thousands of average labor-hours worth of wage, while many are working the same hours and getting a fraction of the average labor-hours worth of wage to begin with. It also offends the income effect.
Third is the progressive tax, which increases with income. The progressive tax affords to those earning less per labor-hour a lower tax rate in compensation, and has those who earn more per labor-hour pay a greater rate in compensation. Progressive taxes top out at a rate that leaves a large amount of income at the upper end in the hands of the individual, even if it's marginally less than is kept by the lower end. The progressive tax accounts for the income effect; yet it also charges people at the top a higher rate of tax than people at the bottom.
You can see how each of these taxes is "fair"--everyone pays the same, the same portion, or a portion proportional to what their money is generally worth to them. You can also see how each of these taxes is "unfair"--the poor are overly burdened, or the rich pay out more of their income.
The progressive income tax works out best given the facts of the matter; that it's technically-correct does not eliminate the base arguments, i.e. we can explain how it's not unfair that people with higher incomes pay a greater tax rate, but people will still question it, and it still looks unfair on the face.