Should You Pay More Taxes if You Make More Money?

By Carlos Portocarrero

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I’ve been asking myself this question a lot since the issue was such a big deal in the presidential debates. I know a lot of people disagree on this but I think it’s one of those issues that’s worth exploring no matter what side of the coin you fall on.

Movin’ On Up

When I got a raise at my last job, I jumped from one tax bracket to the next. My taxes went up and I was a little bummed out. Part of me thought to myself, “Darn, if only they would’ve given me a raise that kept me just under the threshold.”

Then I read up on how taxes work and I realized that the whole bulk of my paycheck wouldn’t be taxed at this higher rate—only the amount of it that goes beyond that point. This is an important point. Check out Money Chimp’s bracket page for a clearer perspective on this. My paycheck went up $4,000 but my taxes only went up $1,000—which is not that big a deal in my eyes. Why? Because I was still getting a pretty significant raise.

Not everyone thinks it’s “no big deal.” For one, the government has shown that they’ll sometimes spend our tax dollars pretty irresponsibly. So when our taxes “go up,” the first thing a lot of us think of is that politicians are throwing that money away or doing useless things with it.

I Think We Should Pay More

I just think this makes sense. You’ve heard it over and over if you’ve watched the debates and heard the commentary surrounding it: “The top 10% of wage earners pay 70% of the taxes in the US” (from this source). Why is that? A lot of people have different opinions, but when it comes down to it it’s rather simple: they can afford it.

And if we taxed everyone the same amount, there would be less taxes to go around—a lot less. You can tax the rich more, but you can’t tax the poor more—there’s just no money to go around there.

Joe The Plumber

Listen, I’m no tax expert, but it’s pretty clear to me that the current system works: if you make more money then hey congratulations! Yay for you! Now you’ll pay more taxes because you have more money to go around and you will be contributing more.

If you saw the debates, you heard about Joe the Plumber and his ambition to buy the plumbing business he works at. He was unhappy that his taxes would go up under Obama’s plan because he would be making over $200,000. To Joe: That’s awesome! You’re lucky you’ll be running your own business and doing so well for yourself. Are your taxes going to go up? They sure are. Under this system if you don’t want to pay more taxes then just don’t make any more money.

But Why Should I Pay More? It’s Not Fair

This is the big argument I hear when I talk to people. Some people think that it’s not fair for them to pay more into the tax pool just because they’re making more money. I understand, to some extent, but these people don’t realize the context under which taxes are being paid. If everyone got taxes at the same rate, then the amount of taxes collected would plummet. The country couldn’t function.

When it comes down to it, I believe people should pay accordingly to what they make. And besides, lookat the jumps in brackets—it’s not that big a deal. It also becomes less of a deal the more money you make: if I’m ever making over $357,000 I’ll gladly pay 35%. No complaints there.

I’m eager to have a healthy discussion about this topic, let’s just try to—as opposed to the politicians—keep it civil.

This post was included in the Tax Carnival over at Don’t Mess With Taxes.

18 Responses to “Should You Pay More Taxes if You Make More Money?”

  • hager Says:

    A flat tax for all citizens is the only fair solution. And for that matter, it’s the only fair solution for businesses as well. While I’m on the subject, doesn’t it seem reasonable that the federal government should pay off everyone’s mortgage, rather than paying the bunglers to fix it from the ‘top down’? I believe we’d find out quickly that the mess isn’t simply the American mortgage crisis that’s got the banks bankrupt.

  • Uncle B Says:

    Making “more” money isn’t the problem! Making money at the expense of the system is. penalizing those that see the loopholes isn’t as effective as closing the loopholes. The range, between to lowest and the mightiest in American society is far too wide to be considered fair or equitable or sustainable for that matter! We have to have an absolute cap on the amount of power and money accumulative under one regime in order to avoid self – appointed royalty ruling a Lower Class of people. This is a basic American fundamental! Right now in the U.S., too many people are hogging the top echelons and few if any spaces are left at the trough for the common folk. We left Europe and other countries, immigrated here and let the same conditions that drove us from our first homes, erupt into rampaging capitalistic exploitation of the common man – Hence, we have McMansions we cannot afford, GM producing extravaganze-mobiles, Ford pushing large engined gas guzzlers, Greasy fast food on every street corner, and industries sold out to the highest bidders in Asia, while the common folk go into deep personal debt and fall onto unemployment lines. The rapid oncoming of the Great Depression, and the fall of our dollar to nonsensical lows will be the forces of change in America, Not Obama’s mild mannered propositions, but dramatic paradigm shifts. We will bus and train to the few jobs left. We will drop porn and cheap movies, We will eat basic healthy foods as none other will be available, We will build small comfortable zero running cost, zero upkeep, technologically advanced dwellings. We will no longer have an oil based economy, and the world will no longer trade directly in U.S. dollars – they simply do not trust us and our politically controlled fiat money system! The Bush/McCain regime did us in! It is time for the uber-rich to get out of the way and move to Dubai, America has a new future to build! Wake Up America, Last Call, Last Call!

  • Mrs. Micah Says:

    I sometimes hear that concern about tax brackets, but since only the dollars in the tax bracket will be taxed at that level, my response is “you’ll still have more money!” Of course, if the tax code gets screwy enough there may be a situation in the future where it would get you out of more loopholes and protections. But these people who are earning more still have more than the people who are earning less.

  • Living Off Dividends & Passive Income Says:

    technically, a flat tax is more fair; where everyone pays the same x% of their income.

    however, rich people have a lot more options available to them and they can legally avoid paying taxes on appreciating assets. setting them with a higher tax bracket sort of levels the playing field. (sort of)

  • Nut Says:

    A flat tax may sound “fair,” but it overlooks the fact that people making more money contribute WAY more to the tax pool. So unless you want to cut the amount of money that is gathered by taxes (not gonna happen with the deficit we have and the financial mess we’re in) or raising taxes on the poor (again, not gonna happen). I’m curious though, if you could vote for a flat tax, how much would it be?

  • Susan/Unique Business Opportunity Says:

    I guess I’m a bit of an idealist, but I have no problem with paying more taxes if I am fortunate enough to make more money as long as it is withing reason. As my business grows and I am blessed with good fortune, I am still very aware of the many people who are much less fortunate than I. If I can pay a little more to ease the burden for someone less fortunate, then I am willing to do my part.

  • QL Girl Says:

    I wouldn’t vote for a flat tax rate, and I don’t think that would be fair.

    I’m not an expert on any of this by any means, but just comparing a family that is bringing in $50k combined (and thats probably a lot more than many american families out there) with a family that brings in $200k…a $8k flat tax (just throwing out a number there) would impact them in completely different ways. (15% for the lower income family, vs. 4% for the higher income one) Families making less have to struggle more just for basic needs. Yes, people making more money find tax loopholes, but in the end they’re still paying more dollars than the average family.

    Also, a comment based on my personal experience: many people that “complain” about higher taxes for higher incomes aren’t familiar with the structure to begin with. As singles, for the first $8k we’re all taxed the same amount: 10%….whether you make $10k a year or if you make $200k a year. Its disappointing when you find out that some of your money will be taxed at higher amounts, but I don’t think its unfair how they do it.

    One final thought (I promise): I don’t understand why the candidates even mention lowering taxes….with all the debt the govt is getting in, don’t they need our taxes to keep things going? Just a thought. Again, I’m not very knowledgeable on this stuff.

  • Writer's Coin Says:

    @QL Girl: All good points, especially the thing about lowering taxes. Keep in mind that, because they are campaigning, they can’t say it. But the it’s very likely that as soon as the winner is declared, he will go on TV and say something to the effect of “Because of the unprecedented collapse of our financial markets and the staggering deficit we find ourselves in, we will not be able to cut taxes.”

    Whether they’ll raise taxes for everyone I doubt.

  • Ron@TheWisdomJournal Says:

    The problem comes in when government bureaucrats decide that the fruits of my labors should be “spread around” to those too lazy to go earn their own. I was reminded of this when I read Joe Biden’s obscene statements that it’s the patriotic duty of the rich–well, those who make more than $250k a year, I guess–to consent to the imposition of higher progressive income tax (so that the state can “take” their money “and put it back in the pocket of middle-class people”–put it back?). I am especially opposed to progressive taxation, since it is vehemently punitive in nature. The more you make the more they take … and that’s “fair?”

    Unfortunately, most people view the wealthy as sitting around a pool sipping on champagne and eating caviar all day while “exploiting” workers. Most wealthy people are small-business owners, not the “evil” CEOs earning “exorbitant” salaries (exorbitant according to whose definition?).

    Progressive taxation (other than one of the tenets of communism) is stupid. New York (state and city) are going to find out why this year when they com up short all the windfall they usually get from Wall Street. California is still in trouble from basing their budget on revenues from the boom going on for ever.

    Remember, our country’s Revolution began over asinine taxation policies.

  • Nut Says:

    @Ron: I think that saying “The problem comes in when government bureaucrats decide that the fruits of my labors should be “spread around” to those too lazy to go earn their own” is kind of jumping to conclusions. Some people are definitely lazy, be they middle class or not. But there are legitimate cases (lots of them) of people who work hard and can’t make enough to live on a day-to-day basis. What happens to those folks?
    And I don’t really see it as taking the money from the rich and handing it out to the middle class. It’s tax money, right? It’s just going to that big pile that pays for roads, projects, programs, etc.
    Your point about the revolution is a good one, though I can’t see today’s society allowing for that kind of uprising. Look at what happened in Waco and the disdain the general population shows towards armed groups that want to secede from the country. They’re viewed as wackos, not revolutionaries.

  • Ron@TheWisdomJournal Says:

    @ Nut
    I recommend you read The Government Racket: Washington Waste from A to Z. THEN tell me I’m jumping to conclusions. Also try reading “Scratch Beginnings.” The guy in that book took $25, a sleeping bag, and the clothes on his back to a city he didn’t live in and in less than one year, lived in a homeless shelter for 70 days then moved into an apartment, got a manual labor job, saved his money, bought a truck, and had over $5,000 saved. I think we empower too many in our society to live off the hard work and sweat of others.

    I’ve been poor. I’ve been so poor I had to catch some fish to eat. I’ve been so poor I had to rely on the generosity of others to put food on my table, I’ve been so poor that I would beg for food from waitresses I knew that worked at restaurants.

    Although I was more than eligible, I never accepted welfare, food stamps, or any government assistance. I’m proud to say that I worked my way up from that environment . The key word is “worked.”

    If I had been taken care of by Uncle Sam, I’m not sure I would be living in my own home, have my kids in private schools, have owned three successful businesses, or have the successful life I now enjoy. And I know it’s not popular, given our soon to be nanny state, but when we make it attractive to live off the public dime, we start down a slippery slope that will be next to impossible to climb out of. Look at Europe. The “poor” in the US have a higher standard of living than the middle class in most European countries!

    And I’m not advocating a violent, armed revolution. But if you advocate self responsibility, lower taxes for individuals and companies, and any REAL job creation strategies, you’re already called a wacko.

  • Writer's Coin Says:

    @Ron: First of all, I commend you on what you’ve been able to do in your life. I think you are definitely the exception to the rule, however. Don’t you think? It seems to me that people like you are really unique. There aren’t stats for this kind of stuff, but I know that many times effort doesn’t always equal results. Some people mess it up themselves, others are lazy, and some just have a run of bad luck. What are we to do with those people? Let them die/live in poverty? I’m not saying I have the answers and I totally understand your reluctance to have people rely on government assistance (a very real problem), but a part of me still feels that people need help.
    I’m no expert, and I’ll definitely check out those books, but I’m curious what your take is on these kinds of things. It sounds like you’re on one extreme and I’m on the other. Is there a common middle ground?
    Either way, I like having discussions like this with people that have different philosophies on serious subject, so I hope my tone doesn’t come off as confrontational. Writing/blogging doesn’t get all the right context sometimes, so I want you to know I’m saying all these things with respect and in the spirit of productive debate.

  • Ron@TheWisdomJournal Says:

    Oh that’s how I take it!
    There are many, many legitimate exceptions to my situation. But there are also many examples that support it too. One site I recently found was about homeless actors

    I DO think there should be safety nets but there is so much waste, bureaucracy, and fraud that it is ridiculous.

    I just remember this: I never got a job from a poor person. Capital is what provides jobs and when you remove the incentive to generate capital by taking it in the form of taxes, you remove the incentive to create jobs.

    Here’s what’s ironic: Go ahead. Take all money and wealth and evenly divide it among all members of society. In less than 5 years, it would be right back where it is today. Why? Wealth resides in how you think, not in what you have. Setting goals and achieving them isn’t something that any government bureaucrat has any control over. (It would also result in a massive cuts in revenue for the government!)

  • Don't Mess With Taxes Says:

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  • Is there no Sympathy Left in the World? Says:

    […] who make hundreds of thousands of dollars (sometimes millions) complain that they’re being taxed more than poor people and that it’s not fair. Why should they be punished for making more money? […]

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  • Real American Says:

    I realize you are just saying all this to start a debate and that you don’t really believe it but I’ll respond anyways.

    If everyone paid the same rate then there would still be enough money to run the country. The government would have to tighten it’s belt a little maybe. Income tax accounts for a small percentage of the government’s income anyway.

    If you make more you already pay more. That’s the magic of percentages. Increasing the percentage the more you make is a dirty trick.

    People that make more generally work much harder than those that make less. Someone that works hard shouldn’t be punished for working hard.

    Not only do rich people have to unfairly pay more of their hard-earned income to taxes, they also get far fewer deductions. They can’t deduct student loan interest, they can’t get earned income credit, etc, etc.

    By rewarding people that don’t work hard and punishing those that do, what kind of message does that send? What do you think is going to happen?

  • don Says:

    You mean people like Romney making 21 million and paying only 13.5 % tax rate ?
    Does not sound too unfair for this rich guy.

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