1 00:00:01,760 --> 00:00:04,060 Tax the rich some more. 2 00:00:04,060 --> 00:00:07,440 That recommendation comes from many politicians. 3 00:00:07,440 --> 00:00:09,840 It seems obvious to tax the rich. 4 00:00:09,840 --> 00:00:14,340 We tell ourselves they won’t miss that little extra bit we take. 5 00:00:14,340 --> 00:00:19,340 And after all, it’s only right that they pay their fair share. 6 00:00:19,340 --> 00:00:23,660 The technical name for taxing the rich more is progressivity. 7 00:00:23,660 --> 00:00:29,320 And it’s hard to oppose a concept that shares its roots with an optimistic word like progress. 8 00:00:29,320 --> 00:00:34,380 But this surface logic obscures some important truths about progressivity. 9 00:00:34,380 --> 00:00:36,680 So let’s stand back. 10 00:00:36,680 --> 00:00:40,240 The first thing we see when we take our distance is surprising. 11 00:00:40,250 --> 00:00:45,000 It is that many people don’t know what progressivity is. 12 00:00:45,000 --> 00:00:48,000 Suppose you pay five dollars in tax on your income. 13 00:00:48,010 --> 00:00:52,710 A rich man pays ten dollars, because he makes twice as much as you. 14 00:00:52,710 --> 00:00:56,090 This arrangement sounds like progress, right? 15 00:00:56,090 --> 00:00:59,270 But that is not a progressive tax schedule. 16 00:00:59,270 --> 00:01:02,870 It is a proportional one—a true fair share. 17 00:01:02,870 --> 00:01:07,660 What was once known as the tithe, but is now commonly called now a flat tax. 18 00:01:07,670 --> 00:01:12,660 Under a flat tax, everyone pays the same rate no matter what they earn. 19 00:01:12,660 --> 00:01:17,540 In the 1980’s a poll by political scientist Karlyn Keene suggested that Americans thought 20 00:01:17,549 --> 00:01:20,789 flat proportional taxes were fair taxes. 21 00:01:20,789 --> 00:01:26,619 And as we know from architecture and art, humans are wired to like proportionality. 22 00:01:26,619 --> 00:01:31,719 A progressive tax structure by contrast is actually disproportionate. 23 00:01:31,720 --> 00:01:34,200 Progressivity resembles a flight of stairs. 24 00:01:34,200 --> 00:01:39,240 Each individual starts out at the bottom, paying the same rate, say 10 percent. 25 00:01:39,240 --> 00:01:43,600 When his income rises to a certain line, the taxpayer moves up a step on the staircase 26 00:01:43,600 --> 00:01:49,620 and his rate goes up to, say 20 percent, but only for the share of income past that line. 27 00:01:49,620 --> 00:01:54,180 At the next step, the rate goes up again, say to 30 percent, but again only for the 28 00:01:54,189 --> 00:01:56,660 last stair of income. And so on. 29 00:01:56,660 --> 00:02:00,440 But the prospect of going up all those stairs tires the climber. 30 00:02:00,440 --> 00:02:05,520 Surveying the rates at the top, workers stop chasing a promotion they once thought they wanted. 31 00:02:05,520 --> 00:02:06,780 Why bother? 32 00:02:06,780 --> 00:02:09,400 The taxman will take the money anyhow. 33 00:02:09,400 --> 00:02:15,040 When workers or professionals stall on the stairs, the government loses money, 34 00:02:15,040 --> 00:02:16,880 but so do regular people. 35 00:02:16,890 --> 00:02:20,830 For when the person who decides not to earn more money is a business owner, 36 00:02:20,830 --> 00:02:25,250 the result of that decision is a smaller company and fewer jobs for others. 37 00:02:25,250 --> 00:02:29,690 Of course some people do keep climbing, no matter what. 38 00:02:29,690 --> 00:02:32,040 Some people are wired that way. 39 00:02:32,040 --> 00:02:38,100 And those taxpayers can get to the point where they pay half of what they earn—especially 40 00:02:38,110 --> 00:02:43,990 in high tax states—which leads to the greatest argument against the progressivity staircase: 41 00:02:43,990 --> 00:02:46,770 Progressivity is unjust. 42 00:02:46,770 --> 00:02:52,100 People have a right to what they earn—even Californians and New Yorkers. 43 00:02:52,100 --> 00:02:57,280 But politicians like being able to say that they are ensuring that the rich pay their share. 44 00:02:57,280 --> 00:03:04,620 And nothing proves their anti-rich credentials like sponsoring fresh legislation for more progressivity. 45 00:03:04,620 --> 00:03:09,820 So for years, President after President, Democrat and Republican, and Congress after Congress 46 00:03:09,830 --> 00:03:15,110 have passed law after law to make the income tax more progressive. 47 00:03:15,110 --> 00:03:19,400 President Richard Nixon signed a law that took nine million taxpayers at the bottom 48 00:03:19,410 --> 00:03:22,830 end off the income tax staircase entirely. 49 00:03:22,830 --> 00:03:27,020 Other presidents like Ronald Reagan and Bill Clinton took a few more million out. 50 00:03:27,030 --> 00:03:29,840 George W. Bush removed even more. 51 00:03:29,840 --> 00:03:34,340 So today nearly half of Americans pay no income tax at all. 52 00:03:34,340 --> 00:03:38,860 And 10 percent of earners pay over 70 percent of all income tax. 53 00:03:38,860 --> 00:03:41,460 Talk about disproportionate. 54 00:03:41,470 --> 00:03:44,530 Here we get to a genuine question of fairness. 55 00:03:44,530 --> 00:03:49,880 There’s something wrong with our democracy when people who pay no tax can vote for tax 56 00:03:49,880 --> 00:03:54,200 increases on fellow citizens who already do pay tax. 57 00:03:54,200 --> 00:03:58,000 But reversing a century of progressivity won’t be easy. 58 00:03:58,010 --> 00:04:03,250 For when you cut taxes for all in a progressive rate structure, the rich necessarily 59 00:04:03,250 --> 00:04:05,100 get a larger tax break. 60 00:04:05,100 --> 00:04:09,420 That is so because they pay a greater share to begin with, and advocating 61 00:04:09,420 --> 00:04:15,340 “larger breaks for the rich” is not a popular political move, to put it mildly. 62 00:04:15,340 --> 00:04:18,560 Many economists make the case for a true flat tax. 63 00:04:18,560 --> 00:04:20,680 Others tout a sales tax. 64 00:04:20,680 --> 00:04:24,170 Consumers would then pay taxes only on what they buy. 65 00:04:24,170 --> 00:04:28,420 Either way, it’s time for politicians to give up their small talk about the earned 66 00:04:28,420 --> 00:04:34,060 income credit, the child credit, and so on, and get out their saws to dismantle the big 67 00:04:34,060 --> 00:04:38,740 staircase—our disproportionate income tax. 68 00:04:38,740 --> 00:04:43,240 The country could then try a tax code that’s simple and easy to navigate, like a new road 69 00:04:43,250 --> 00:04:46,010 that runs straight ahead into the horizon. 70 00:04:46,010 --> 00:04:49,320 Many of us would call that progress. 71 00:04:49,320 --> 00:04:52,580 I’m Amity Shlaes for Prager University.