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17 December 2008

Progressive Taxes

This is a short synopsis of the progressive tax system in the last 30 years.

In econ. money is given in terms of 'real' and 'nominal'. Real money is money in terms of what it can actually purchase at any givn moment in time. Because inflation is the general rule a dollar today will buy you less than it did yesterday. In real terms a dollar a year ago is worth roughly $1.03 today. Nominal money is just money without the extra dimension of time. It's just the actual numbers. Its like saying GDP last year was 13 trillion and this year it was 13.5 trillion. That's GDP in nominal terms, but it really means nothing in real terms if you don't know what inflation/deflation was.

Where I'm going with all this is that over time our tax system gets out of whack. The gas tax is not tied to inflation so it stays the same nominally every year but actually goes down in terms of real dollars. The afformentioned article shows that the progressive tax system needs further tweaking in order to keep the burden of taxes evenly spread throughout society. Basically, the gap between the rich and poor is increasing, so even though the top 1% are paying a similar percentage (nominally) they are playing less in terms of total burden (real dollars).

Why aren't all tax systems tied to inflation and income distribution? It seems like it would take the heat off politicians. A simple formula would decide what strata pays whats percentage on any given year. At the same time we're talking about income redistribution and whenever I mention that word my conservative freinds go nuts, but isn't that just denial of the obvious? Not mentioning a certain 'R' word doesn't make social security or a graduated tax system of income redistribution any less real. And while I'm beginning to rant, why are people against this? Do you really want someone making $20,000 a year to pay the same amount in taxes as Warren Buffet? I know I know... you work hard, but that kind of income discrepancey can't be explained by hard work. One can only work so hard, and I don't know any pipe fitters that make over $100k. Do investment bankers really work that much harder? Born on third base, acts like they hit a triple.

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