Taxation Parity: Can People with Low Incomes Be Taxed More Than Those with High Incomes?

Introduction

The debate over tax parity often centers on whether individuals at different income levels should be subject to the same tax rates. This article explores the feasibility of implementing such a policy and examines existing tax systems to highlight disparities and potential measures to address them.

Current Tax Structures and Disparities

Current tax systems in many countries, including the United States, are designed to be progressively tiered. This means that as income increases, the tax rate also increases. However, there are several ways in which low-income individuals and high-income individuals are taxed differently:

Progressive Income Taxes: Higher earners pay a higher percentage of their income in taxes, but only on the additional income earned above a certain threshold. FICA Taxes: Workers are required to pay FICA (Federal Insurance Contributions Act) taxes on the first $110,000 of income. High-income individuals pay these taxes on a higher portion of their total income. Sales Taxes: Low-income workers, who often have no savings and must spend almost all of their income, are subject to a larger share of their income in sales taxes compared to individuals who can save and invest. Property Taxes: Low-income individuals who rent pay the property taxes of their landlords, while homeowners also pay property taxes. High-income individuals may own multiple properties, leading to a higher share of their income going towards property taxes. Capital Gains and Interest Income: High-income individuals often derive a significant portion of their income from capital gains and interest, which are taxed at lower rates. In contrast, low-income individuals primarily earn money through salaries and wages, which are taxed at higher rates.

Case Study: Refundable Tax Credits and Current Systems

One aspect of the current tax system that further complicates the issue is the effect of tax credits and refunds. For example, a low-income individual might pay $200 in taxes but receive $2,000 in refunds. In theory, changing the system to ensure that only taxes paid are refunded rather than the full amount earned could increase the tax burden on low-income individuals. However, this would require significant legislative changes at the federal and state levels.

Proposed Measures to Address Tax Disparities

To address the disparities in the tax system, several potential measures could be considered:

Progressive Wealth Tax: Implementing a tax on high levels of wealth could help redistribute income and ensure that high-income individuals contribute more equitably. Flat Tax on Interest Income: Introducing a flat tax rate on interest and capital gains could help simplify the tax system and make it more equitable. Higher Sales Tax Rate for High-Income Individuals: While complex to implement, a higher sales tax rate for high-income individuals could help level the playing field. Reform in Housing and Property Taxes: Ensuring that the burden of property and rental taxes is more equitably distributed could benefit low-income individuals and reduce their overall tax burden.

Conclusion

The current tax system in the US is designed to be progressive, but the reality is that disparities persist. While changing the system to tax low-income individuals more heavily would require significant legislative action, potential measures such as a progressive wealth tax, higher sales taxes for high-income individuals, and reforms in property and rental taxes could help address these disparities. The challenge lies in finding a balance between fairness and economic growth, ensuring that everyone contributes fairly to the tax system.