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The Application of Ethics in Progressive Taxation
For many centuries, societies have always judged individuals based on their social class. This social structure permits the society to place an individual or a group in a certain social class based on their economic status. The four social classes include; the upper class, the middle class, the working class, and lastly the poverty class. (Business Dictionary, Social Class) With income, comes tax that is given to the government based on the income earned annually. This leads us to questioning whether it is morally justifiable to tax wealthier individuals and families heavier while taxing the lower income individuals and families at a lower tax bracket. This process of taxation is considered to be “progressive taxation”. (Investopedia, Progressive Taxation) Progressive taxation is approved by some whereas it is criticized by others. This research paper will reflect upon these two perspectives and also reflect whether taxation aimed at redistributing wealth is morally reasonable.
According to John K Roth’s definition of deontological theory in “Ethics”, he defines deontology to be the determination of whether an action is ethical or unethical according to its intention rather than the consequence of the action. Consequentialism is the determination of whether an action is ethically correct or incorrect through analyzing the consequence of the action rather than the intention. (Roth 315-316, 367-369) During this research paper, Roth’s ethical theories of consequentialism and deontology will be used in order to distinguish whether progressive taxation and the use of taxation to redistribute wealth can be identified as morally or unethically correct.
According to the article “Understanding Attitudes toward Progressive Taxation”, it is believed that the progressive rate structure is one of the most desirable forms of taxation upon many philosophers, economists, and tax policymakers. Those that believe in progressive taxation have the notion that the higher-income taxpayers should be liable to higher taxes than those of lower income. (Michael, Peggy, Cassie 166,168) According to “Progressive Taxes” by Joel B. Slemrod, in a progressive taxation scheme; “one’s tax structure is more progressive than another if its average tax rate rises more rapidly with income.” (Selmrod) According to the deontological theory, the intention of this progressive tax structure is to tax every individual or family according to their income and so it betters the life of many people within the society. The consequence of the tax policy will allow all individuals within the society to live their lives according to their needs. Wealthy individuals will still have enough income to live better than those of lower social classes, making it morally ethical because it’s consequences according to the consequentialist theory is saving many lives from poverty.
An experiment was done on four-hundred and sixty underground students that were taking nine introductory courses and two additional tax classes at two large university institutions in different regions in the United States. The students were given different scenarios to each of the tax policies that are used to tax citizens in the United States and this included; regressive, flat, and lastly progressive taxation. (Michael, Peggy, Cassie 169-171) Regressive taxation is the contrary to progressive taxation, in which taxes the lower income people more than the wealthier individuals. (Investopedia, Regressive Tax) Flat tax is the application of the same tax rate among all social classes. (Investopedia, Flat Tax) The results of the experiment concluded that the students preferred progressive taxation over the other two forms of tax policies. Progressive taxation had the higher percentage compared to both flat and regressive taxes. Seventy-nine percent preferred progressive tax rates over flat, whereas seventy-six percent preferred progressive tax rates over regressive. (Michael, Peggy, Cassie 171) This demonstrates that among those that do have a basic knowledge of tax, they believe that progressive taxation is the fairest and the most ethical way of bringing among equality in the society.
Those that support progressive taxation believe “that taxes should be assessed proportionally to income, and that upper-income taxpayers are avoiding paying a proportionate tax and therefore higher taxes on upper-income persons are needed.” (Michael, Peggy, Cassie 185-186) The upper-income taxpayers are avoiding paying their proportion of tax to the government and which leads to a negative intention of not willing to help the society as much. This can be viewed as unethical because deontologists would want the wealthy social classes to be contributing more to help the society attain happiness among the greatest number of people according to Roth’s term of utilitarianism. (Roth 1531) The consequence of unwilling to pay their proportion of tax will lead the society to not progress as much as if they did pay their proportion of tax according to the progressive tax structure, and therefore making it unethical for those wealthy individuals to avoid paying their proportion of tax.
Progressive taxation helps the government apply “Income redistribution” to better the society. Income redistribution is the series of actions which takes income from some individuals within the society and redistributes it to others. By collecting taxes, fees, subsidies and granted social benefits, it permits the government to enact this social benefit of income redistribution. Governments also collect taxes, to finance state institutions which benefit in the help to better facilitate the social and economic life of communities. Progressive taxation helps in the cause of Income Redistribution by taking more from the higher income people to help those individuals and families that are under poverty through allowances, subsidies, public goods and services. The practice of taxing the higher income individuals and families based on their expenses like luxury goods, help the means of redistributing income among the society to adjust the inequality among the individuals in the society. (Radu 228-229) According to deontology, the intention of income redistribution is to bring an equalitarian society by reducing the gap in income between the rich and the poor people. This transfer of income is looking to solve the social class inequality and therefore making it ethical. The consequence of income distribution reduces social tensions and creates equalitarian communities that are more united. It is also allowing the government to help those in economical need through cash transfers, food tickets, and social housing. (Radu, 229-232) This action according to consequentialist is ethical because its consequences are bettering the lives of those that are living in poor conditions and allowing them to live a standard life rather than a harsh one.
While some believe that progressive tax structure is morally ethical, there are others that do not believe this tax policy is best for the society. They believe progressive taxation is politically irresponsible because it allows majority of the federal income tax to be contributed by the top one percent of taxpayers in America that amounts to thirty-eight percent of federal income tax, whereas the bottom fifty percent of taxpayers pay a way lower portion of only two point seven percent of income taxes. According to deontologists, progressive taxation would be seen as unethical because the intention of the bottom fifty percent of taxpayers is to act selfishly and depend upon the wealthiest of the society to pay a major portion of federal income tax while only two point seven percent of incomes taxes are paid by them. It is estimated that forty six point nine percent of workers did not contribute and pay the federal income tax during 2009. This results to a minority of taxpayers that are affected with the increase in tax rate and leads the majority of taxpayers to act rather selfishly and depend upon only the top wealthy people to pay their personal federal income taxes to bring change to the society. This political irresponsibility within this taxing policy, leads to an unjust treatment upon the wealthy people. (Hagopian 23) The consequence according to the consequentialist theory would also be unethical, because the consequence of forty six point nine percent of workers not paying their federal income taxes would lead to inequity among the minority because major portion of the income taxes is being provided by them.
The second argument against progressive taxation is the fomenting dissension. In the United States system of government and all of Western nations, the issue and tension between the political system and the economic system exists. This tension among both political and economic sphere, leads to the act of disputing over welfare and tax policies. (Hagopian 24) The act of disputing over the welfare and tax policies can be viewed as ethical according to deontology, because the intention is to reduce the built-up pressure among the political and economic system in order to bring positive change. Those whom agree with income redistribution hold the fact that inequality stirs up disagreement and strife. Whereas those against progressive taxation, believe that dissension is still present when progressive tax laws are unfair towards those people whom are being taxed. Therefore, a progressive tax structure will lead to people revolting because of the inequity-based principle that is present in the tax policy according to those against it. (Hagopian 24) According to the consequentialist theory, the act of disputing against the progressive tax structure can be seen as ethical, because it can lead to change within the system like resolving the issue of having more people pay their income taxes rather than having the wealthy social class contribute to mostly all the federal income tax.
Acknowledging both sides of the argument towards progressive taxation, I believe that this form of taxation can be both morally ethical and unethical according to deontological and consequentialist theory by Roth, and which makes this taxing structure flawed. This can allow us to create a new doctrine of fairness that can be morally justifiable according to both consequentialists and deontologists. This doctrine is constructed on five basic principles.
The first principle includes how the most equitable form of tax system is one that bases its policy on the value of benefits received. (Hagopian 24) According to deontologists, this principle is ethical because the intention to pay taxes to the government is to receive valuable benefits in return that benefit the greatest number of people and brings happiness according to the utilitarianism theory. This policy will lead the government to base this principle on the benefits they provide to the society. The consequence therefore will be positive because the government will try to maximize the benefits they offer to the citizens from the tax they collect from the people. This makes this principle ethical in both terms.
The second principle includes how income is perceived to be the “most equitable measure of the value of benefits” and also the ultimate well-being of an individual. Therefore, taxes should be taken proportionally to the benefits received in return from the government. (Hagopian 24) Based on the deontology theory, the intention of this principle is to bring equality among the society by having the government provide equal benefits from those taxes collected proportionally from each individual, and thus making it ethical. The consequences of the principle will allow each individual to have a good sum of their income for daily living expenses due to the advantage of proportional taxing and can also advantage in the governmental benefits that is provided from the tax collected. This principle rejects the notion of per-capita tax system and applies a tax system of proportion instead. (Hagopian 24-25)
The third principle of this doctrine is implying that only “clear income” should be taxed. By clear income, it means that those under the poverty level are not required to pay taxes because their below the level of subsistence and therefore they could barely pay their living expenses. Whereas those that are above the level of subsistence should pay taxes because they are more than capable in living their lives with adequate surplus of income after all their daily living expenses. (Hagopian 25) Deontologists would believe that this principle is morally justifiable because the intention of this principle is to bring an equalitarian society and help those that are incapable to live by not having them pay taxes. Those that are beyond the level of subsistence should pay their taxes to permit the government to have some form of financing to help the society as a whole. The consequence of this principle is moral because it allows a greater number of people to live a fair life with an adequate sum of income.
The fourth principle is how progressive taxation on income is inequitable when it comes to work effort. In an equal playing field, those that have a high-value aptitude generally make more income than those of low-value aptitude. Among each tier of aptitude, includes a “mini-society” that differentiates income only through the work-effort they put in to making money. Hence, an individual that puts a work effort above the median in his/her tier aptitude will make more than someone that puts a work effort below the median. Although the individual whom is implementing more work effort is making more money, he/she must pay more taxes than the person who puts less work effort in the tier of aptitude based on the progressive tax structure. This unfair system according to consequentialist will lead to a great number of people of making less after-tax income per hour than someone else in their tier of aptitude because they worked harder to earn more income. Progressive taxation in this sense is seen as unethical because of its inequity.