Federal Income Tax

We have recently been hearing a lot of talk in the TV news on federal income tax. Buzz words are "pay your fair share" and "the Buffett rule".
   
Let's take a look at the purpose for a federal income tax. It is to pay for the cost of government! Period!. The justification is for government to obtain the funds in order to do the things that are not easily done by individual citizens. An example would be to develop, equip, and maintain a military force able to defend its citizens from foreign aggressors.
    
Most taxes are based upon use of a product or service. Such "use taxes" track the quantity of product or service used by an individual and charge a number of dollars accordingly. The easiest and fairest calculation is to apply a percentage on the amount used. For example, the cost of developing and maintaining a federal highway system is paid for by a percentage tax on purchased motor fuel. The rationale is that the more motor fuel one purchases, the more miles he is likely to be traveling on federal highways.
   
 In the case of government services, it is essentially impossible to distinguish between amounts used by various individuals. For example, do I get the same amount of protection from the federal military as my neighbor? The answer is obviously "yes", and logic would say we should pay the same amount. The difficulty comes in with the fact that my neighbor makes 10 times as much annual income than I do and $1000 out of his pocket would create much less hardship for him than $1000 out of my pocket. The more extreme case is my neighbor on the other side, who can barely afford to feed his kids, and $1000 from him would put them in semi starvation.
    
So while we are essentially interested in obtaining money from the people in order to run the government, it is apparent that a federal income tax cannot be a fixed dollar amount for an individual. This then leads us to consideration of the percentage system.
   
 Let's just grab 10% as a starter. Since my neighbor on the left makes $1 million per year, we will charge him $100,000 in tax. I make $100,000 per year, and we will charge me $10,000 in tax. My neighbor on the right makes $10,000 per year, and we will charge him $1000 in tax. Not really fair, is it? My neighbor on the left is paying 100 times more tax than my neighbor on the right for the same service. But another way to look at it is that the amount of pain is distributed more evenly. $100,000 from my neighbor on the left probably causes him about the same amount of pain as $1000 from my neighbor on the right.
    
Up to now, we have used some logic in order to come up with what may be a reasonably practical solution of financing government. But now, we get into some human aspects. Somebody jumps up and says my neighbor on the left should be paying more than my neighbor on the right. Another person responds that my neighbor on the left is already doing so; he's paying 100 times as much. The first person then says that what he means is my neighbor on the left should not be entitled to $1 million in earnings per year and government should confiscate more of it than merely a standard tax rate of 10% or $100,000. While that doesn't make any logical sense, there are a great number of people who don't make anywhere near $1 million per year and begrudge the fact that my neighbor can do it while they can't (jealousy factor or compassion?).
    
Now the politicians get into it. Each income earner is a voter and there are many more voters in the low income group begrudging the incomes of the higher income group. In order to hopefully reduce their own taxes, and at the same time not reduce benefits, they will vote to increase TAX RATES for the higher income people. Since the public votes its interest through the political representatives, the politicians pass laws which establish a GRADUATED INCOME TAX RATE. This is where we stand now. High income persons now pay not only a high dollar tax as compared to low income persons, but also pay significantly higher tax rates. In fact, approximately half of US taxpayers pay zero federal income tax.
    
We now have to consider ideology. If you believe that one's efforts should be rewarded, you likely will find the present federal income tax rates abominable. Conversely if you believe that every individual has a right to economic equality, you will likely feel that income tax rates on high income people should be further increased.
    
In order to resolve that dilemma we must consider another human attribute. That is, "incentive". Incentive basically means why a person will do something. Most people aspire to economic wealth, whether they are presently high income earners or low income earners. The high income earners have already established procedures whereby they justify their higher incomes through some general public accomplishment, such as making automobiles or selling groceries. In so doing, they also have developed what we call business/economic capability. That is, they have the ability to continue to grow and produce. But what if society penalizes them for their success? Will they continue to grow and produce, or will they lose incentive to switch to some other form of "entertainment", such as partying, gardening, reading, etc., all of which benefit only the individual and not society as a whole. Some say that human beings are like ants. No matter how many times one knocks down their bridge, they will rebuild it. It is likely that there is some of that aspect in a human being, so that he may strive to continue to produce, even under negative conditions of government or the people's desire, but it is more likely that as a rational organism he will follow the course of least resistance.
    
Conversely, low income people or a few guilt-ridden high income people most likely will continue to pursue a program of obtaining their assets from the "rich". The progressively higher tax rates on high income people will help support medical and pension benefits and in extreme cases food stamps and other "entitlements", which previously were designated as "welfare" for the poor. Since this group of "users" is already a large voting block, it will likely increase in size and ultimately evolve into a system where user demands exceed the ability of producers to produce. The mass of voters to vote more benefits at the expense of producers then becomes of no consequence and privation develops.
    
What is to save our society? Another aspect of incentive. Those persons who now operate in the user mode, with primary activity of obtaining benefits from the "rich", also have the ability to modify their operations to become producers themselves. It is those persons who will really decide the forthcoming election in November. They will decide whether they should have individual freedom to develop and maintain financial or other goals or whether they will continue with a user philosophy with eventual destruction of the society beyond their life terms.