3.5.1.1 Proportional Contributions to Shared Costs
It is reasonable, and economically necessary, for most people to make proportional contributions to the shared costs of creating wealth
Those who gain more from the economy should pay proportionally more tax, to fund agreed levels of benefits, shared services, and infrastructure. Talented individuals can justify earning more than other people, but it is equally justifiable that they make proportional contributions to shared costs, reflecting the benefit that they have derived from other people’s inputs to their wealth. And it is in everyone’s economic interests to ensure that adequate funding is available:
● The delivery of goods and services, and the connection of suppliers with their customers, depends upon a shared infrastructure – of transport, communications, law enforcement, regulations and financial services – which may have been at least partly publicly-funded. People cannot run their businesses without this – and the more money they make, the greater the value they are likely to have derived from it.
● Wealth creators need customers. The libertarian Robert Nozick tried to defend the economic inequality that flows from individual merit, in chapter 7 of his book Anarchy, State and Utopia. He used the example of a baseball player called Wilt Chamberlain who, he argued, should be allowed to charge more for tickets to the games in which he was playing because he was popular and people were prepared to pay the extra price. But this individual relied on other people: he needed the rest of the team and the game’s customers.
● Taxation in proportion to income is compatible with self-interest and motivation to do better: creating more wealth makes the individual better off and able to contribute more to society.
● Benefit payments enable people in need to actively participate in economic activity – so they generate demand and thereby increase the opportunities for others to create wealth. Wealth transfers support the working taxpayers’ potential customers.
● People who have retired from work have benefited in the past. Wealthy old people should pay proportionally as much tax as those who are still in work.
Wealth’s dependence on other people, and on collective infrastructure and institutions, thus provides a justification for what is called ‘economic reciprocity’ in this book.
Wealthy people do not always make proportional contributions to shared costs. There are examples of so-called regressive taxation:
● Rich people have been able to apply political pressure, so that politicians allow them to pay much less than their share of taxation – as described later (6.7.2).
● American Social Security program “keeps 26 million people out of poverty”. It is funded by taxes on working people, but there is a cap on contributions so that wealthy don’t pay Social Security tax on most of their income. The fund’s future solvency is a cause for concern, but it “could easily pay everything it will owe to everyone for the next 75 years if the cap on income subject to Social Security taxes were eliminated” according to Robert Reich.
● Wealthy people and corporations often resort to tax avoidance and evasion, as described earlier (3.2.4.4).
As noted earlier (3.2.4.1), payment of tax strictly in proportion to income is rarely implemented; it would be a so-called ‘flat tax’. In practice, many tax codes are progressive. They are set to relieve poorer people of the requirement to pay any tax and to increase the burden on the rich – as described in the next sub-section (3.5.1.2).
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3511c.htm.