Meghan McArdle raises an interesting point about the limits of taxation:
[I]sn’t there some upper limit on tax brackets for the wealthy? When the Bush tax cuts expire, that top rate will go to 39.5%. Then there’s the 2.9% Medicare tax, and the 0.9% Medicare surtax we just enacted. There are, for those living in places like New York, New Jersey, California, or DC, state and local income taxes that can add an extra 5-10% onto the tax bills. We’re now well over 50% marginal rates before we’ve even considered things like property and sales taxes.
When more of your extra dollars are going to the government than yourself, I think it’s a problem, even if you’re very rich. I think that has to be factored into any argument about the “fairness” of the tax system.
I think McArdle has hit upon a defensible principle in the morality of taxation. How can it be fair for the government to take more than half a person’s income? An abandoned spouse is unlikely to get more than half in a divorce settlement. Why then should the government be able to take that amount each and every year of a person’s life? Even Rawlsian liberals, who advocate fairness as justice, should be opposed to cumulative levels of taxation that exceed 50 percent.
Rather than talking about marginal tax rates—which few people fully understand—savvy politicians should support a law that would state that no citizen can be compelled to give more than half of his annual income to any government entity. Who wouldn’t support such a law? It be an almost unbeatable campaign issue.
Assuming, as I do, that this is a moral issue, what would be the counter-principle that would justify taking more than 50 percent of income? And if the allowable percentage should be higher, what should the upper boundary be?