Assignment 5: Persuasive Paper Part 3: Possible Disadvantages, Answers, with Visuals

Assignment 4: Persuasive Paper Part 2: Solution and Advantages 

Gregory Best

Dr. Roger Fontana

ENG 215

8/21/17

Should taxes on People making over $250,000 be changed?

Although the United States of America is a developed country, the nation still faces a great problem of income distribution. It is estimated that only 20% of the people of America own more than 85% of the wealth (Osberg, 2015). A lot of people continue to struggle with poverty issues while others are extremely wealthy. One of the significant contributions to the wealth inequalities in the United States is the taxation inequalities. Due to the nature of the US tax policies, the people who earn less income might end up paying proportionately more than the high income earners(Piketty & Saez, 2007). Therefore, there is need for a review in the U.S. tax policies to increase the percentage of tax paid by the people who earn more than $250,000.

The Solution

The solution to the unequal taxation that has been contributing to the large wealth gap in the United States is making tax more progressive. Progressive tax rate refers to a rate that increases with an increase in a taxable amount. Therefore, people who have lower incomes with have a lower tax percentage compared to the higher income earners (Diamond & Saez, 2011). However, the irony of progressive taxes is that the lower income earners still end up paying proportionately more than the higher income earners. Data on the U.S. tax system shows that the company has a bad tax policy that gives capital gains like profits from investments and capital gains, special privileges hence making investment income to be more valuable than income that is gained from actual work (Piketty & Saez, 2007). Such a system only benefits the very wealthy people who have enough money to make capital investments while the people who fall on the lower parts of the income graph continue to pay proportionately more taxes to the government. Therefore, making taxes more progressive will help to benefit the lower income earners by enabling them to make a proportionate contribution to the government’s revenue.

Advantages of the Proposed Solution

Making taxes more progressive is the ethical choice to make in a country where 20% of the population owns most of the wealth in the country. While the rich people are getting richer, the poor people are getting poorer because of various reasons including the unequal taxation. The taxation policy in the United States has been designed to benefit the rich people because of the lower capital investment taxes and the higher income taxes (Diamond & Saez, 2011). The people who are wealthy enough to make huge capital investments end up paying proportionately lower than the people who have to work several hours to get the lower income. Drawing on the utilitarian approach to ethics, it is important to make the decision that has the most utility to the parties involved. Making taxes more progressive increases the chances for the lower income earners to gain more income and since they make up the majority in this issue, their utility should be prioritized.

Making taxes more progressive will have an economic benefit to the country. The wealthy people are the majority of wealth owners in the United States (Saez &Zucman, 2016). Therefore, focusing the taxation on them will enable the government to collect a significantly larger amount of revenue to be used in developing various sectors of the economy. Progressive income taxation also leads to an increased equitability in the income distribution hence increasing the revenue of the general population. A bigger percentage of the country is made up of the lower income earners. When the level of their income increases, they will have more disposable income to spend on factors associated with economic development such as education(Saez &Zucman, 2016). The relative contribution of every individual in an economy leads to economic development. When human capital in increased in the form of education, skills, and improved competencies then there will be an improvement in the state of the economy.

The decision to make taxes more progressive in the United States would also have a social advantage. Progressive tax systems are used as a tool for the redistribution of wealth in an economy. The current social structure of the United States shows that the poor people make up the biggest percentage and own a significantly small percentage of the overall nation’s wealth. Therefore, this solution will help to further reduce the gap between the lower social class and the upper social class by increasing the incomes of the poorer people and reducing that of the wealthy people.

Conclusion

Income distribution disparity is a problem that has drawn a lot of debate in the United States with the government trying to find ways to reduce the gap between the rich and the poor. The modification of the tax policy in the U.S. has been one of the most debated issues with some people arguing that increasing taxes for the rich will be unfair while others believing that it has potential benefits to the country’s economic and social setting. According to income data on the United States, it has been seen that the upper class people with an annual income that is above $250,000 end up paying proportionately less taxes than the people who earn below this income. As explained above, making taxes more progressive that they already are is the best decision to make as it will help the government to gain more revenue, improve the social setting of the country, and it is the ethical decision to make.

References

Diamond, P., & Saez, E. (2011). The case for a progressive tax: from basic research to policy recommendations. The Journal of Economic Perspectives, 25(4), 165-190.

Osberg, L. (2015). Economic inequality in the United States. Routledge.

Piketty, T., & Saez, E. (2007). How progressive is the US federal tax system? A historical and international perspective. The Journal of Economic Perspectives, 21(1), 3-24.

Saez, E., & Zucman, G. (2016). Wealth inequality in the United States since 1913: Evidence from capitalized income tax data. The Quarterly Journal of Economics, 131(2), 519-578.