18.104.22.168 Proportional Contributions to Shared Costs
There are several economic reasons why it seems reasonable that people should pay for the cost of publicly-funded transfer payments and shared services in proportion to their earnings, and why it is in their interests to do so:
- The delivery of goods and services, and the connection of suppliers with their customers, depend upon a shared environment – of transport, communications, law enforcement, regulations and financial services – which may have been at least partly publicly-funded. People cannot run their businesses without this – and the more money they make, the greater the value they are likely to have derived from it.
- The libertarian Robert Nozick tried to defend the economic inequality that flows from individual merit, in chapter 7 of his book Anarchy, State and Utopia. He used the example of a baseball player called Wilt Chamberlain who, he argued, should be allowed to charge more for tickets to the games in which he was playing because he was popular and people were prepared to pay the extra price. But this individual relied on other people: the rest of the team, the customers and society’s infrastructure were all necessary. Talented individuals can justify earning more than other people, but it is equally justifiable that they pay more tax, reflecting the benefit that they have derived from other people’s contributions to their wealth.
- Taxation in proportion to income is compatible with self-interest and a motivation to do better: creating more wealth makes the individual better off and able to contribute more to society.
- Benefit payments enable poorer people to actively participate in economic activity – so they generate demand and thereby increase the opportunities for others to create wealth. The element of tax that goes towards transfers is going to the taxpayers’ potential customers.
Wealth’s dependence on other people, and on collective infrastructure and institutions, thus provides a justification for what is called ‘economic reciprocity’ in this book.
As noted earlier (22.214.171.124), payment of tax strictly in proportion to income is rarely implemented; it would be a so-called ‘flat tax’. In practice, tax codes are usually set to relieve poorer people of the requirement to pay any tax and to increase the burden on the rich – as described in the next sub-section (126.96.36.199).
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