Taxation, Fairness, Equality, and Mathematics

last modified: 1/1/2009

We all believe that taxation should be fair, and we all believe that we know what is meant by fair. But do we really? Why doesn't anybody seem to know how to do the calculations? Perhaps we failed to determine what exactly it is that needs to be fair and equal.

Fair implies that something is equal. This means we can use mathematics to evaluate it. But what should be equal? Without an assumed system of values, even mathematics doesn't give us a clear answer. What is fair in taxes? What is equal in taxes? Here are a few possibilities.



Equal amount

Everybody pays the same dollar amount. Some local taxes take this form. It is equal, but is it fair? Should the poor be charged the same amount as the rich? Is this form of equal fair?

equal percent - "flat tax"

If everybody pays the same percent rate, we have a form of equal where the rich pay more than the poor. It is equal, but is it fair? For a poor person, necessities will consume about 90% of his income. A tax rate higher than 10% will force him to make serious sacrifices. For the super rich, necessities will consume about 1% of their income. Some of them could pay over 90% taxes without making any serious sacrifices. A flat tax is equal, but is it fair? Can fair mean that the poor are making much greater sacrifices than the rich?

equal consumption taxes

People could be taxed according to what they consume. Equal consumption would pay equal taxes. This would be equal but would it be fair? Some taxes already are levied in this form - for example the gas tax. But its not always clear who's doing the consuming. Who are the primary beneficiaries of our police forces and legal system. Most analysts say these services benefit primarily wealthier citizens.

Other quandaries arise. The cost of basic commodities for the poor is roughly 100% of their income. So a consumption tax would be levied against 100% of the income for the poor. But for the rich, consumption could easily be less than half their incomes, even with luxuries. So the consumption tax rate would much higher for the poor than for the rich.

Equal burden - a form of a graduated taxation

Taxes could be designed so that each family suffers about the same dent in their lifestyle. A person earning about $20,000 would have to make some small sacrifices to pay about $1,000 in taxes or 5%. It would impact just a little on his rent and food expenditures. A person earning about $100,000 would make similar sacrifices to their lifestyle (i.e.. almost impacting their mortgage and food expenses) if they paid about $40,000 in taxes or 40%, and a person making $1 million would make sacrifices to their lifestyle if they paid about $800,000, or 80% in taxes. (These are examples, not suggested tax rates.) By giving each taxpayer the same relative burdens we have made it equal, but have we made it fair? Is it fair to charge one person that much more than another? Is it fair to charge for resources that were not used?


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Conclusions: Values, Fairness, and Taxes

There are many different versions of "fair," and "equal." Once we know which meanings we have chosen then we can establish our taxes according to our definitions for "fair," and "equal." Once our values are established, we can use mathematics to evaluate our methods.


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