Fair taxes

S

hould the state tax people? That is, should

it be allowed to appropriate resources

through coercion? If so, what type of

taxation is justified? The case against any form

of taxation is that it is an illegitimate interference

in the decisions of individuals. If you help to

make a singer very rich by buying her albums

then that is your choice and you cannot complain

if the result of your actions – combined with the

actions of her other fans – is that inequality

results. We will explore the counter-arguments

to this position in this chapter, but assuming that

some kind of taxation is justified which is the

fairest? Think about the options below. What are

the arguments for and against each one? Try to

rank them in order of fairness, from the fairest

to the least fair.

• Progressive income taxThe first part of your
  earnings are not taxed and then each subse-
  quent level of earnings is taxed at a progres-
  sively higher marginal rate. For example,
  zero tax on earnings below $10,000; 10 per
  cent on $10,000–$14,999; 20 per cent on
  $15,000–$24,999; 30 per cent on $25,000–

$39,999; 40 per cent on $40,000–$99,999;

50 per cent on earnings above $100,000.

• Flat-rate income taxA single rate of tax on
  all earnings. For example, if you earn $10,000
  you pay 20 per cent. If you earn $500,000
  you pay 20 per cent.


• Sales tax (on all products). For example,
  20 per cent on all products.


• Sales tax on luxury items.


• Property purchase tax Taxation on the
  purchase value of a property. For example,
  2 per cent on properties below $500,000;
  4 per cent on properties above $500,000 (and
  higher rates for more expensive properties).


• Capital gains taxA tax on non-employment
  earnings. For example if you bought a house
  for $300,000 and sold it five years later for
  $450,000 you would be taxed on the
  $150,000 increase.


• Inheritance taxA tax on the estate of a
  deceased person.


• Site value taxA tax on the unimproved value
  of land (you are not taxed on any improve-
  ments you make, such as building a house).

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