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A Tax Taxonomy

(Photo: Hemera)

Dan Hamermesh’s much-discussed post about taxing capital gains brought to mind my own taxonomy of taxes, so to speak, from least to most progressive:

  1. Poll tax. Everyone pays the same amount. What could be fairer than this?!
    England tried it in the late 14th century, leading in 1381 to Wat Tyler‘s Rebellion. Six hundred years later, England tried it again, leading to the Poll Tax Riots.
  2. Sales tax. Goods are taxed at a flat rate (often 17 to 20 percent in Europe, and 5 to 8 percent in various American jurisdictions). Because the wealthy spend a smaller fraction of their income on taxable goods than do the poor, this tax is less progressive than a flat income tax.
  3. Flat income tax. Everyone pays the same fraction of his or her income. This tax was the core of Steve Forbes’s platform when he ran for president in 1996 and 2000.
  4. Progressive income tax. The usual system today: Higher incomes are taxed at a higher marginal rate. In the U.S., doubts about its constitutionality were settled by the Sixteenth Amendment to the Constitution.
  5. Flat wealth tax. Wealth (net worth) is taxed at a fixed rate. If income is the flow into net worth, then wealth is its accumulation, so inequalities in income produce significantly larger inequalities in wealth. Thus, a wealth tax is more progressive than an income tax (and a flat wealth tax is probably more progressive than most progressive income taxes).
  6. Progressive wealth tax. Larger wealth holdings are taxed at a higher rate. Switzerland and France use a progressive wealth tax as part of their tax codes. This link analyzes, with lots of data, the effect of a Swiss-style progressive wealth tax (the data are from the 1980s and 1990s, so all the dollar amounts seem low to us today).

This taxonomy helps me decide how angry to be at various public costs. Even if your sense of justice differs greatly from mine, the taxonomy still can help you decide where to aim your political fire.

Here are examples:

Have fun trying the taxonomy on your favorite taxes and charges!

Years ago on a final exam in environmental geography, I proposed that the charge for admission to Yellowstone National Park become a tiny fixed fraction of income (the Waldorf tuition model). I think I proposed 0.02 percent: $8 for a family making $40,000 per year, versus $200 for an high-level executive making $1 million per year. The professor so loathed the idea that he gave the whole exam an F, earning me my only college D. Now, however, I think that my proposal was not quite right. The public already pays for Yellowstone through progressive taxation. Thus, let the cost at the park gate be zero. That would be the only poll tax I support!