Why do people that make more money pay such a higher percentage of their money in taxes?

Question

It doesnt sound fair. Why should they be punished just because they make more money? Isn't that socialism?

Answer 1

I'll use the American federal income tax in my response, but the principles apply to any progressive tax system.

First, and in my opinion most important, a strong democracy requires a strong middle class. In a pure capitalist system without a progressive tax system the rich get richer, the poor get poorer, and the middle class shrinks and is weakened. Eventually the majority of the population is poor and either overthrow the democracy or elect someone like Hugo Chavez who throws out capitalism.

Second, I do not believe having to pay a higher tax rate that you can afford is more punishing than paying a lower tax rate that you cannot afford. If I make a million dollars and pay 35% of it in taxes, that will not stop me from being able to send my kids to one of the best universities, buy good medical insurance, have reliable transportation, etc. However, if I make $30,000 a year and pay 10% of it in taxes, that $3,000 could deprive me of some or all of those items. If you look at it that way, a 10% tax rate for the person making $30,000 a year can be considered more unfair than a 35% tax rate for a person making $1,000,000 a year.

Third, a higher tax rate on the rich encourages the rich to invest more of their money into instruments that have a tax advantage, such as municiple bonds. Usually the tax advantage is offered because the investment has some value to society as a whole.

You ask if that is socialism. It certainly has some socialist principles, but it is not socialism. No society has ever been, or can ever be, purely capitalistic, purely socialistic, or purely communistic. Socialism was never considered unamerican until the cold war. There used to be active, viable, socialist parties in this country. Fortunately we have, so far, kept the capitalism as or primary economic model in this country, and I hope we always will. However, if we eliminated all progressive taxes I don't know how long capitalism could remain the driving economic policy for the country.

Answer 2

Simple, we have a graduated income tax system. That means that the more you make, the higher your tax rate.

If you think that it's all that unfair, dump your well-paying career and get a job flipping burgers at McDonalds. You'll pay a damn sight less tax. You'll probably have to give up the fancy home, the nice car, the private education for your kids, the boat, the Benz, yadda, yadda but you WILL pay a lot less tax.