April 16th, 2010

Taxes

Prompted by election thought and discussion...

What is the basis of a fair tax system?

a) That everyone contributes evenly
b) That everyone contributes proportionally
c) That everyone pays for the services they receive
d) Everyone should get the same amount after tax

We'll ignore complexities about how taxes are collected, and where they are applied - these are interesting, but if we don't know what we want in the simplified situation, we've not really any business discussing them.

An illustration of the above.

Jack and Dave walk into a casino. They both take $1000 in, and after a hard night playing the poker tables, they come out with a profit. Jack has $100,000 profit, Dave has $1,000 profit. They need to pay for a taxi home, and also for a hotel to stay in, and a meal. For the both of them, these come to $1000 (they have expensive tastes). Jack got the last single room though, so really Dave's total was $600, and Jack's was $400

a) They split the bill, $500 each
b) Dave pays just under $10, Jack pays just under $1000
c) Dave pays $600 for his nicer room, Jack pays $400
d) Jack pays for the hotel, and the meal, and the taxi, and then gives Dave another $49,000, meaning they both now have $50,000

To me, b) seems terribly unfair. But it also seems closest to how I think a tax system should work. My feeling for what is fair, and my feeling for how taxation should work clash horribly. I'm forced to admit that I don't want a fair tax system.

(Alternatively, that the ability to earn more through a combination of luck and skill is subject to a totally different set of rules about what is fair than it is in life. I don't believe that.)

(Also, People should have spotted that in life people don't start on an equal footing. So do your answers change if Dave walks in with $10, and Jack with $1000?. I think that this is an argument that we should make the world fairer, not that unfair taxes are fair.)

Finally, if anyone knows, or suspects, what each parties tax plans would look like in terms of a b c d bias, I'd be interested to know what you think.