Progressive_Taxation_Rates

Progressive Taxation Rates Rose Anna Miller SOC 120 Instructor: Linda Atkinson July 1, 2012 Ethical Issues Associated with Progressive Taxation Rates The current United States Progressive Taxation Rates are set periodically by the United States Congress and requires ratification by both houses and approval by the President of the United States. There are always two sides to look at our current progressive taxation rates, one would be as a Democrat and one would be as a Republican. I believe that it goes even deeper than just the two-party system. Having a progressive taxation rate is not in the best interest of most of the people who pay taxes in the United States. Even with those who pay a higher income tax due to their ability to earn more and those who earn less pay less, but what ends up happening is that those at the lower end of the pay scale actually get government assistance by receiving earned income credit. Therefore those on the lower end receive a refund from the government on other items that have nothing to do with the underlying issue that they earn less money. The current progressive tax rates can be found and downloaded from the Internal Revenue Website. The current progressive tax rates are part of the instructions for the preparation of the federal individual income tax return, which are different for each tax year based on that tax year’s progressive tax rate. The 2011 current rates range from 10% for those who are at the lower end of the earnings scale to 35% for those at the top end of the earnings scale. There are caveats to the progressive tax rate, qualified dividends are paid at a 15% tax rate and capital gains vary because they are based on short-term holdings, which are less than one year, and long-term holdings, which are for more than one year. The progressive tax rates also include extenuating circumstances for different filing statuses such as if you are single, married and filing jointly, married and filing separately and the final category is head of household. Single and married and filing jointly are pretty much self-explanatory. There are various reasons as to why married taxpayers want to file their tax returns separately, but there are also tax consequences to that decision. The filing status of head of household requires the taxpayer to meet specific criteria in order to use this filing status. Progressive taxation rates have not benefited the tax paying citizens of the United States and have caused a further widening of rich vs. poor in this country. According to Sam Pizzigati (2005, pg. 63), “The nation’s 400 richest taxpayers now pay just 17.5 percent of their total incomes in federal tax. Sixty years ago, according to IRS data, the richest Americans paid 78 percent of their total incomes in federal tax.” From a deontologist’s viewpoint, if the progressive tax rates were increased to effectively tax the richest percentage of Americans while the poorest percentage of Americans paid no tax, then this would mean than since the richest Americans are the smaller group and the poorest Americans make up a the larger group. Would not it be better to tax the smaller group for the better of the larger group' The smaller group of taxpayers would then be the richest taxpayers. The rules of what is the fairest tax for the largest group that does not pay taxes would then be the over-riding factor. The largest group of taxpayers would then be those at the bottom end of the pay scale. The deontologist would then most likely keep the progressive tax rate and would most likely increase the top rate to a much higher rate, while possibly having no tax rate for those at the bottom of the scale. According to Kevin A. Hassett (2007), “Many economists have argued that a high marginal tax rate can be harmful to economic growth, and that steeply progressive tax schemes might not achieve progressive objectives. The costs of lower growth, after all, are borne by someone, and the poor are first in line when suffering is doles out in a weakening economy.” One might say that Hassett’s way of looking at the progressive tax rate would be through the eyes of a deontologist. When one looks at the Progressive tax rates from the deontologist’s view of ethics then it would appear that by increasing the tax on the richest taxpayers would possibly result in a more equalization of wealth. The payment of higher taxes on the richest taxpayers would have an end result that the richest taxpayers would then have less money. While on the other end of the spectrum, with the poorest taxpayers paying no tax, they would then increase their money. The utilitarianism viewpoint would then say that the richest Americans can afford to pay higher taxes and the poorer taxpayers cannot. Therefore, to be in the best interest of making the largest group the happiest, would be for the progressive tax rates to be at a much higher rate for the richest taxpayers and possibly no tax rate at all for the poorer taxpayers. The unforeseen ethical issue for the utilitarianism viewpoint would be what is the actual consequence of having a higher progressive tax rate for the rich; and then in contrast what would be the actual consequence outcome of the poorest taxpayers actually having no taxes to pay. If utilitarianism ethics were to be used in determining the Progressive tax rates, then you would have the richest taxpayers responsible for the complete support of the poorest taxpayers. As in many instances in any society, having one group (the richest) pay to support the other group (the poorest), then which group would be the one making the decisions. If I were in the richest group, I would feel that since I am paying to support the poorest group, then I would want to have more say in how the government spent my money. While on the other hand, how would I feel if I were in the poorest group' I would also want to have input into how the government’s money was spent, especially for those services that I receive and would benefit my family and its daily lives. For me the determination of whether to look at the Progressive tax rates from the utilitarianism stand point would cause a rift in our society due to the unequal proportions of taxes paid by the richest and no taxes paid by the poorest and then the fight for control on who makes the decisions to govern and spend the tax dollars. Virtue ethics on the other hand would bring into question what is the moral question of why do to those who are able to provide more for themselves by their ability to make more money, live a better lifestyle, etc. have to pay more in taxes Have they not also made sacrifices to get to this point in their lives, such as getting a high school and college degrees and many further degrees such a medical, law, and so on which education affords them the ability to then earn a much higher salary than those who have not spent their time and money of working towards bettering themselves. Virtue ethics would then say for the poorest taxpayers that since you have not taken advantage of what is offered and get minimally your high school diploma, then why is it the responsibility of those at the higher earning level responsible to pay for your inability to improve your life. If the virtue ethicist was responsible for setting tax rates, they might change the progressive tax rate to a flat tax rate which would result in everyone paying exactly the same tax rate on what they earned. The virtue ethicist would most likely introduce a flat tax rate, whereby all taxpayers would pay at the same level no matter what the income earned. If a flat tax rate was instituted, then each person paying tax would feel as if they are a part of the community, whether at the city, state or national level and would therefore have a say in how those tax dollars are spent. In a flat tax rate society, I believe that more people would be more interested in what happens to each and every dollar that is spent by all of the governments at each of the different levels and our society would hopefully run on a more equal footing. From the relativist’s viewpoint the progressive tax rate is the fairest position for all of those involved in paying taxes. No matter which way one were to look at the issue of progressive tax rates, since everyone is coming to the table from their viewpoint, each viewpoint is the correct one. With using the relativism in the tax debate, the relativist would not look at the individual categories that are currently list on the Internal Revenue Website, where there are different percentage payments for taxes, but there are also categories of taxpayers. The relativist would discard the categories and place each taxpayer in the same position. Emotivism is an interesting way to look at the idea of progressive tax rates. The richest taxpayers would use the phrase “Boo” when it comes to whether or not they pay the highest tax while on the other hand the poorest taxpayers would use the phrase “Hurrah” because they would possible pay no tax or in many instances receive the earned income tax credit and receive more in a refund of income taxes than they actually paid in the first place. Emotivism in the arena of paying taxes would then use each class as what is best for that class. In order to give both groups the “Hurrah” effect, which tax rate would be the best for both groups' If we look at the issue of emotivism, it is best for both groups to be able to use the “Hurrah” when paying taxes. Neither group would have to use the “Boo” phrase. Emotivism would most likely the implement a flat tax rate which would result in the best for both groups. A flat tax is just that, each person would determine what their earned income was, how much they made in dividends and interest and how much they made in short and long term gains. The flat tax would then be determined on the total of all of these different types of income and payment of the tax would be based on the total. The flat tax would also eliminate any deductions, such as mortgage, real estate taxes, medical expenses, and other deductions that many taxpayers current take on their federal individual tax returns on Schedule A. This would be a huge change because most taxpayers at the lower end of the progressive tax rate often do not own homes and therefore are unable to take advantage of these additional deductions that those at the higher tax rate are able to take against their taxable income. The elimination of deductions would actually cause the federal government to be able to collect more in tax revenue than they are currently collecting. The need for such a large Internal Revenue Service would put more funds back into the coffers and we would thus have more in terms of dollars to spend on necessary programs that keep our government going. Critics of the flat tax are generally those who are in a position to make their living preparing income tax returns and making sure that the government continues to implement a progressive tax rate is directly associated to the livelihood of those who earn their living from the preparation of such returns. I for one have stopped preparing individual income tax returns mainly because the need for malpractice insurance has skyrocketed that the pros do not outweigh the cons. I also no longer have a period of time in my life where I give up my life in order to have a “tax season” and lose four months of each year to just working. Both sides, the richest and the poorest taxpayers, could easily all come from the ethical egoism perspective. Each side would want what is best for them and the other side would have to just fend for themselves. Ethical egoism is the position that each person acts in his or her best interest. The richest taxpayers would vote for a flat tax, while the poorest taxpayers would vote for the progressive tax rate, which would include no rate for those at the bottom of the pay scale. The ethical egoist would have to agree with both sides, because each side would be acting strictly in their own best interest and not in the interest of the entire people that use the funds earned from actually paying taxes. Unfortunately, the ethical egoist’s position would possibly result in a catastrophe due to neither side wanting what is the best for the whole. A city, state of government would not be able to exist with two different types of tax rates, one for the richest and one for the poorest. I am not even able to comprehend how two separate tax rates would be able to co-exist and having the governments get anything done. Right now with the progressive tax rates, the issues of who runs the country and who does not causes our governments to often shut down, run out of money and the arguments on both sides of the isles in Congress have continued to become even more partisan with each passing year. Progressive tax rates will most likely change by the end of the current 2012 tax year, especially because of the current issue of estate taxes. Estate taxes are paid on the death of an individual, for federal purposes the tax begins on estates over $3.5 million. But, Congress has not acted on instituting a tax rate for estate taxes and the current tax is scheduled to expire on December 31, 2012. Therefore, we can anticipate that if Congress is going to overhaul the estate tax rate, with the current economic climate, Congress is expected to also change the progressive tax rates to help our nation get out of its current fiscal crisis. According to K. Hagopian (2011 pg. 8) there are possibly alternative income tax systems which are: “A per-capita, or “head” tax which would require each person to pay his or her per-capita share of the costs of government. (Technically a per-capita tax is not an income tax, but is almost universally accepted as the most economically efficient tax system.) A proportionate or “flat” tax, which would tax each collar of income at a single rate. Embodied in virtually all proportionate tax proposals is a substantial broadening of the tax base through the elimination of most tax deductions, credits, and preferences, which has the benefit of simplifying the tax code and reducing the cost of compliance. The purest form of this system is a single-rate tax levied on all earned income from the first dollar, but different variations on this theme have been proposed. A digressive tax, which is a proportionate tax only on income above a certain threshold or exemption. The exemption makes the system progressive, but typically much less so than a system of graduated rates. A progressive tax, which taxes incremental income at higher marginal rates as income rises, resulting in an increase in taxes as a percentage of income as income increased.” As the debate continues, so will the need for more and more ideas to come to the forefront and as the ethicists hopefully become more involved in this issue, hopefully a common ground will be found. References Hassett, K. A. (2007). Go Flat – Now, National Review. Vol. 59, Issue 4, pg. 8. Retrieved from https://content.ashford.edu/ Hagopian, K. (2011). The Inequity of the Progressive Income Tax, Policy Review, Issue April & May 2011, pgs. 3 – 27. Retrieved from https://content.ashford.edu/ Moser, K (2010). Ethics and Social Responsibility. San Diego, Bridgepoint Education, Inc. Retrieved from https://content.ashford.edu/ Pizzigati, Sam (2005). Must Wealth Always Concentrate' Just taxing high incomes hasn’t brought us lasting quality. We may have to cap them. The Good Society Journal. Vol. 14, Issue 3, pgs. 63-67. Retrieved from https://content.ashford.edu/ United States 2011 Tax Rate Schedules, Retrieved from http://www.irs.gov/pub/irs-pdf/i1040tt.pdf