SIGIFICANCE OF THE STUDY
THREE SIMPLE REASONS WHY WE NEED
PROGRESSIVE TAX RATES
Conservatives have two central tenets in their tax reform agenda. The first is to simplify the tax
code by eliminating tax expenditures government spending through the tax code that come
in the form of deductions and exemptions. The second is to move from a progressive income
tax to a flat income or consumption tax. But conservative politicians often conflate these goals,
suggesting that "simple" and "flat" are one in the same. Tax expenditures are what complicates
the tax code, not progressive rates. While we should aim to eliminate expenditures, especially
those that benefit those who are relatively well off, progressive tax rates are justified
economically and morally for these reasons:
Efficiency. What is the optimal amount of public goods and services the government should
provide? If the government creates a rule that says everyone must pay an equal share of their
income, revenue will be restricted to the rate that the lowest earning workers can afford to pay.
Consider the case of a married couple with drastically different earnings. One spouse earns
$40,000 per year, while the other earns $400,000 a year. If the couple goes Dutch, they will
restrict their shared consumption. However, if the couple adopts a rule that the higher earning
spouse pays more, then they can enjoy a higher level of shared consumption. This means they
will consume a better house, better car, and better lifestyle.
Happiness. Advocates of progressive taxation often say Rich people can afford to pay more.
What they really mean is that $100 means more to a person making $5,000 a year than it does
to a person making $500,000 a year. This means that allowing poor people to keep a larger
share of their income will result in a happier society than making everyone pay the same rate.
Justice. If people deserved most of their income, there would be a good case that they should
be able to keep it. However, people dont morally deserve their income because almost
everyones income results largely from factors beyond their control. For example, the poorest
Americans are richer in absolute terms than the richest Indians. This isnt because Americans
are that much more hardworking than Indians, but because Americans have access to a superb
set of institutions and a grand scale of specialization and trade within our borders.
The knowledge and technology we have that allows us to be rich is the result of a multi-
millennia human project and social cooperation. Other factors such as our genes, parents
income, our order of birth, year of birth, and even month of birth have enormous impact on
our futureearnings.
To what extent can governmental policies help cultivate a relatively prosperous, secure and
free citizenry? A 2011 study published in Psychological Science, Progressive Taxation and
the Subjective Well-Being of Nations, evaluates the impact of progressive taxation a
higher tax rate for the rich and a lower one for the poor on levels of satisfaction and well-
being.
The researchers, based at the University of Virginia, analyzed nearly 60,000 responses to
the 2007 Gallup World Poll from more than 50 countries. Questions included self-
assessments on overall well-being, daily life and satisfaction with public resources such as
education and transportation. The study also evaluates the difference between the lowest
and highest effective tax rates for each country.
Study findings include:
Progressive taxation is positively associated with overall well-being and satisfaction
with daily life; however, a progressive taxation policy or a nations wealth in and of itself
may not create a happy society. It is the use of the nations wealth to provide citizens
with better public goods that results in increased well-being.
As government spending as a percentage of gross domestic product increases,
reported levels of satisfaction with daily life and overall quality of life decline. Our
findings therefore do not provide support for the simple big government idea that the
larger a role the government plays, the better the quality of life becomes.
Controlling for income inequality and variations in national wealth, individuals in
countries with more progressive taxation consider their lives as being closer to ideal
and evaluated their daily lives more positively than those in nations with less
progressive taxation.
The association between higher levels of subjective well-being and more progressive
taxation was mediated by citizens satisfaction with public goods, such as education
and public transportation.
The researchers note that factors such as social cohesion may play a role in promoting a
sense of well-being. In addition, the value of progressive taxation may be in the resources it
provides: Even if a society does not adopt a progressive tax, as long as it can afford good
public transportation, a quality educational system, health care and so forth, citizens are
likely to be happy.
