Finding the right means to tax is never easy

There has been recent discussion in United States politics to increase the tax on wealthy persons and/or corporations. Such a tax would not only tax their individual income but also any corporate gains over a certain threshold. The second portion of the tax is more interesting as it correctly targets wealthy individuals and their primary source of income(which is capital gains). Historically also, capitals gains usually have had favorable tax treatment in the United States. If the tax plan takes effect and makes its way through the American political system, the preferential treatment of capital gains income may soon become a relic of the past.

Economics is primarily concerned with the production, consumption, and transfer of wealth. Taxation is the system by which there is a transfer of wealth from the producers and suppliers of wealth to an elected(or sometimes unelected) power authority. Then the power authority will distribute the revenue from the taxation system to different social programs or incentives. The current US plan under consideration is no different. Here the primary producers of revenue will be the wealthy individuals and corporations that have historically benefitted from low capital gains taxes and numerous favorable loopholes to reduce taxable income. The power authority is the US Government. And finally the primary benefactors is to be lower income individuals and families (there appears to be provision to include government paid public pre-school).

The success of this plan passing through the political process will of course depend on the political parties coming to an agreement and making various amendments to the bill such that each party will be able to receive enough concessions to satisfy their voter base( or their political party’s talking points).

Historically, however in the United States, government programs tend be much less financially sound than any private counterpart. A fine example of this is the US healthcare system, which typically performs much worse than its private for-profit counterparts(which usually have to respond to shareholders or a private board). However, the government run healthcare system also performs an essential function of providing for the health needs of the population. Thus it is not socially responsible to de-fund it.

Whether or not a paid preschool program is something the taxed population agrees with remains to be seen. Unfortunately, it seems the targets of the taxes will not have enough votes to have a say. Whether this is “fair” or not, is a matter for political and economic philosophers.