How High Should Taxes Be?

70% on the ten-million-and-first dollar? A wealth tax? How high should we tax the wealthy?

First, why do we tax at all? The theory of taxation is that, contrary to those who call it theft, taxation is payment of debt. By virtue of the services rendered, the tax is how the services are paid for. Larger earners, conducting more commercial activity, using more of the legal system, shipping inspection, and so forth, are to pay a higher percentage due to their higher rewards and higher use.

Economists get into the effects of tax more than the reasons for it, or the fairness of it. Things like the Laffer Curve are drawn up, to theorize that taxation matters a lot and that government revenue can be equal at very different places along the curve, while private spending and overall economy can be very different. Politically-embedded economists thus focus on an apolitical, theoretical system to make a political argument.

But the woman waiting for a bus to take her to her minimum-wage job isn’t rewarded by such abstractions. She knows that the nominal rate and the effective rate are about the same for her, while they are a Grand Canyon apart for those who can afford a team of accountants. She knows that she could pay 100% of her whole life’s wages and never pay as much as some of the wealthiest should in a single year.

None of which answers the question of how high taxes should be. The ultimate answer to that query is that nobody knows, and unfortunately, we’re not planning to find out. The answer to how high taxes should be is that we should adjust them continuously, and find out based on the experimentation. That we have the knowledge and ability to do so, we lack only the political will.

For example, we could start with the current tax rates, and make half-point adjustments to all brackets, or add new brackets and adjust those too. As long as the timing is regular and the adjustments are gradual, we can account for a lot of the noise. As long as we are willing to tweak the rates based on current conditions, lowering taxes in recessionary times, raising them in times of health, the slow and methodical march of the tax rates could yield us with something better than arguing will.

The interest rate already works this way. Is it not time for the tax rate to join it?