A few weeks ago a family member explained the simple and appealing logic of progressive tax rates — or tax rates that get progressively higher on higher incomes.
Someone who makes $10,000, pays 10% to the government only has $9,000 left. Someone who makes $1 million pays 50% still has $500 thousand left — a lot more even though they pay a higher rate.
I’m looking for a simple and appealing argument against it. I don’t think I’ve found it yet. But I think some good reasons against it are in the following sources.
In St. Augustine Anticipates H.L. Mencken and Walter Williams, Don Boudreaux quotes from St. Augustine’s City of God. The quote equates the use of force to take from folks via the state with robbery.
I explained another good reason in my post, The political power machine. Giving government officials the power to set different tax rates for different people doesn’t do much except give those in government the power to extract economic rent.
But both of those arguments may not be necessary if F.A. Hayek is correct. In the comment section of Don Boudreaux’s post, commenter DG Lesvic quotes from Hayek’s The Constitution of Liberty (p. 306). Hayek claims the only argument needed against government redistribution is the economic argument that redistribution increases inequality. All other social, political and moral arguments leaves the door open for the economic argument that it decreases inequality.
Hayek might be onto something. Folks seeing progressive taxes as a means of decreasing income inequality may be why the simple logic that my family member articulated is so appealing.
If Hayek is correct, then we need to know how redistribution increases inequality and be able to articulate that in a way that is as intuitive and simple as the two sentences from my family member.
Does anyone have any ideas on how to do that?
Our Dinner Table 
you and i are dividing up a pie and we cant come to some agreement as to how to divide it. we decide to bring in a mediator to help us ‘redistribute’ our pie. amazingly enough…this mediator demands their own piece! now how equal are we? lets say the original proposed split was 53/47 (1.13) the mediator wants 10 just to mediate. 5 each. now we are at 48/42 ( 1.14)
First of all one needs to examine “why” one would want to redistribute income in the first place. “Why” does one want a levelized income distribution? “Why” would one incentivize levelization?
Ah, collectivism! Yes, we all become “ the gray area”. It becomes Gotham City and Bat Man will never answer the Bat Phone as he is busy “levelizing”. Yes, the 1400’s are made to look as if they were boom years.
I think your relative is rather myopic. Rather than giving all the incentive to enlarge the pie, he/she imagines that the pie will always be of a fixed size and that the only way those with a smaller piece can get more is by taking some from those with a larger piece. Rather than putting their envy to constructive use by improving their own abilities to create wealth, the small pie people engage in destructive envy and try to bring the big pie people down to their level. A much better outcome – the wealthy get wealthier and the “poor” get wealthier, too – results if incentives are in place that encourage everyone to make an effort to add to what they define as their wealth and prevent others from taking it. Otherwise, as Smith noted, we all end up equally poor.
The best argument against a progressive tax is a simple thought experiment. Imagine three men (Allen, Bob, and Charlie) find themselves stranded in the wilderness. Allen and Bob are both equally experienced woodsmen, while Charlie has no survival skills whatsoever. Whether Allen and Bob have a moral duty to help Charlie could be debated, but for the purpose of this thought experiment assume they do. What is not controversial is that both Allen and Bob have the same duty, whatever it is, since they have the same abilities. Now imagine that Allen uses his skills to the fullest and builds for himself a complete log cabin. Bob on the other hand sees this as an opportunity to become one with nature. Bob spends the majority of his day walking through fields of wild flowers and thinking of his place in the world. What obligation do Allen and Bob have to Charlie now? Under a progressive tax system, Allen incures a greater obligation then Bob because of how he chose to spend his day. What is the moral basis for that outcome?
It’s interesting that a country like the U.S. would adopt a progressive tax system that, coupled with welfare, creates incentives to being poor. Yes, the person who makes a million will still end up with $491,000 more than the guy who has only $9,000 left, but the guy EARNED a million, not $500K. Half of which is taken by the government for equal/unequal uses. I just don’t understand the logic behind people that think this is okay. They are either already rich, or don’t want to be rich. What incentives are there to work harder and create wealth when the government takes half you salary while a guy who earns less gets only 10-20% taken? If you want to live in a place that results in equal income for all citizens, it’s no longer capitalist market, it is a communist market system.
“…creates incentives to being poor.”
That’s one piece that is under appreciated or neglected by people who support the equality the believe a progressive tax system provides.
Another important piece is that they don’t realize that a progressive tax actually feeds back on income and causes higher wages, which face a higher tax rate, to grow faster than lower wages with lower tax rates.