Progressive Taxes

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The article talks about how some may consider the nominee for the Federal Reserve chair to be 'progressive'. Progressive as in more Keynesian.

Like many Keynes economists, she sees economic inequality as probably the largest single concern.

I think one of the most important things that needs to be done for the benefit of everyone is redistribution of wealth via highly progressive taxation. Redistributing the wealth will (obviously)decrease economic inequality.

Many people have problems with progressive tax structures. I will do my best to explain why there really isn't any moral or ethical dilemma with taxing certain people higher percentages.

One, the lump-sum tax structure. In my eyes, the tax policy which should theoretically be the most just is a lump-sum tax on every human or every household. Everyone pays a set amount; everyone pays the same set amount. The reason this at first seems the most just is that you are taxing the people themselves, regardless of there wealth or income. Everyone is treated equally.

Two, the flat tax. Everyone in this taxing code is taxed an equal percentage. This time you are taxing there income, not the actual person. The reason this structure is superior to the lump-sum tax is it takes into account the well-being of the individual it is taxing. It takes into account the well-being of the populace indirectly, as well-being is relational to income. It doesn't indenture the populace as much as the lump-sum tax. Therefore, upon further analysis this tax structure actually is more just than the lump-sum method.

Three, the progressive tax structure. Fundamentally, this taxing method is identical to the flat tax. The progressive tax structure taxes well-being just like the flat tax. However, this tax structure identifies the fact that well-being isn't linearly proportional to income; it's not an arithmetic relationship. It is a geometric (exponential) relationship. Thus, since the relationship between income and well-being (which I will define better in a sec) is geometric; and since the desired tax is on well-being; the way you go about taxing income is therefore geometric - a progressive (sometimes called graduated) tax.

Well-being is how well someone lives. It is the quality of life someone has. Quality of life is essentially how happy someone is. Happiness in economics is measured in utils(that is utility). Something which has more utils than another thing causes more happiness.

Not everything is weighted equal in utils. Not even the same things are weighted equal in utils. Certain things for some people cause differing levels of happiness than they do for other people. At different times the utility of an object can also change. Hence, utils are an inherently relative term.

Now to show that income and quality of life aren't directly proportional.

For one, if someone buys two of something, say two IPods, then the utility of the second IPod will be less than the utility of the first. This is because the use that the user finds for the first one is greater, and hence the happiness that is derivative from it is greater, than the second one.

Within economics, especially basic economics, there is a general assumption that people are rational. When it comes to buying things, they buy what they want/need the most. Hence, people will try to maximize there utils. They do this by buying what gives them the most utility first.

Since the amount of utils derived from buying something diminishes as the amount of things bought increases, spending twice as much money doesn't grant twice as many utils. Therefore someone who has an income of 10 million dollars doesn't live twice as well as someone who has an income of 5 million dollars. This creates a logarithmic regression relationship with income on the X axis and well-being on the Y axis.

Therefore, if the intent is to tax well-being, as it is in both flat-taxes and progressive taxes, then the only logical way to do that would be through an exponential relation like the way progressive taxes work. So, in reality, proponents of a flat-tax actually want the same thing as a progressive tax, they just don't know it.

I couldn't find an article explicitly on progressive taxes but I wanted to write about so this is the closest I got.