Wednesday, October 27, 2010

A Brief Case for Progressive Taxation

 Matt Yglesias worries that progressive taxation won't distinguish between deserved and undeserved wealth.
The best possible policy remedy to giant, seemingly undeserved increases in CEO pay, is some kind of sharply progressive consumption tax. But then again that would be the best policy response to well-deserved increases in CEO pay as well.
I'm not sure I see a distinction.  I think a principled argument can be made that successful individuals rely on good fortune for their success (in that they were able to access both large portions of human and social capital, as well as a degree of simple luck). And given that society has a great need for government spending, not the least of which is to support agency in those who had the misfortune of lacking human/social capital and luck, asking the successful to return large portions of their income seems reasonable.

To the extent that they aren't willing to honor this bargain, given the assumptions I've just laid out about how they earned their income to begin with, they would be considered selfish, un-American, etc. Should they not accept my underlying premise, then their position is principled. However the burden is still on them to prove that their success was not in fact dependent upon good fortune (and to the degree that they admit it is, they are back in the position of being accountable for progressive taxation).

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