Do progressivly taxed governments benefit by increasing the divide between rich and poor?

[Mr Skeptic]

It is very common to have a progressive taxing system, where the rich are taxed a greater portion of their income. The reasoning being that the rich can afford it, and perhaps also as a balancing device to reduce the gap between rich and poor, and other such reasons. Now, for a given overall revenue, this system would mean that were revenue concentrated into a few hands this would increase the effective taxation rate, compared to if the taxation were divided more equally. Therefore, the government can increase its tax revenue by concentrating income in lieu of raising tax rates.

 

Additionally, concentrating the income also means that the tax rate on the poor could be dropped since tax revenue is increased. The poor will therefore feel good about government because they are taxed less, and usually are also jealous of the rich and so not mind so much that they get taxed more. The poor also tend to need more government services, so increasing the poor makes the government more needed and bigger. Meanwhile, the rich would appreciate all the help even if they do grumble about the taxes.

 

So it seems that with this strategy, everyone will be happy -- rich, poor, and especially the politicians. Of course they would have to do it in such a way that the poor don't figure it out. It seems this would make sense to do, but do they actually do it?

[Pangloss]

and perhaps also as a balancing device to reduce the gap between rich and poor

 

It's the job of a democratic government to balance wealth between the rich and the poor?

 

 

the tax rate on the poor could be dropped since tax revenue is increased

 

Kinda hard to decrease from zero. Almost half of all Americans pay no income tax at all. (source) In fact, since the burden has been moved beyond the null point, you can't really say that it's a matter of "balancing" anything anymore. It's just a matter of taking money from people who, according to some arbitrary line that may be moved tomorrow, have it.

 

That's actually a bad thing for your hypothesis of desired control, since you don't have a bar you can move up or down for that income bracket. It's just... off. Kinda like the problem the Fed has with interest rates -- they're already effectively zero, so they can't lower them any more.

 

But hey, you can always go after sales tax, fees, and union dues. And if that's not enough to accomplish the goal (whatever the goal is, which I'm not real clear on), there's always free food, free health care, and of course you gotta have free entertainment to keep them happy, right?

[Mr Skeptic]

More negative is still dropping.

[Pangloss]

I don't know what that's supposed to mean either.

 

Didn't you want to talk about this? It's your thread, man.

[Mr Skeptic]

Basically, what I'm suggesting is that politicians would benefit from a 2 step process:

1) Pass laws and policies whose effect is to concentrate income in the hands of as few as possible. (transfer money from poor to rich)

2) Tax the rich and then give aid to the poor. (transfer money from rich to poor)

 

This would make them needed and appreciated by everyone. So do they do it?

[Marat]

E.g., if the United States had three trillionairs and 330,000,000 peasants, then all the peasants could be perfectly happy with the government because they could avoid all taxation, while only the three trillionaires would be angry at having to pay about $2 trillion a year in taxes among them to fund the government. But in a democracy, this many angry people wouldn't matter much. But the downside of that system is that all governments use progressive taxation to dampen the inequality of wealth distribution in the name of social justice, and under this arrangement, that goal would have to be surrendered at the outset. In theory, liberal democracies can only function where there is a large middle class with sufficient resources for the leisure, education, and public spiritedness to participate in the political process, so without a more even wealth distribution, the whole system might collapse.

 

Even in economic terms, capitalism only functions because of the constant cycling of wealth from the rich who invest in productive enterprises at the top down to the middle class and poor below who work in those enterprises, earn a wage from the rich, and use it to consume the products the rich manufacture. With too much money concentrated at the top, inventories pile up in the factories and stores because consumption power falls, and you have the economic conditions which produced the 1929 crash.

[lemur]

E.g., if the United States had three trillionairs and 330,000,000 peasants, then all the peasants could be perfectly happy with the government because they could avoid all taxation, while only the three trillionaires would be angry at having to pay about $2 trillion a year in taxes among them to fund the government.

 

 

The funny thing is that all those peasants would just clamour for money instead of organizing their own economy. Of course, if the trillionairs organized a sufficient governmental system to police the peasants and prevent them from doing any labor or utilizing any natural resources without permission from the trillionairs, the peasants might attempt to use democracy as a means of gaining control of the economy. But why would these trillionairs stand to be bullied into giving up their control over their resources?