Paul L. Caron

Wednesday, September 7, 2011

Progressive Taxation Makes People Happier Than a Flat Tax

Progressive Taxation and the Subjective Well-Being of Nations, by Shigehiro Oishi (University of Virginia), Ulrich Schimmack (University of Toronto) & Ed Diener (University of Illinois):

The way some people talk, you’d think that a flat tax system—in which everyone pays at the same rate regardless of income—would make citizens feel better than more progressive taxation, where wealthier people are taxed at higher rates. Indeed, the U.S. has been diminishing progressivity of its tax structure for decades.

But a new study comparing 54 nations found that flattening the tax risks flattening social wellbeing as well. “The more progressive the tax policy is, the happier the citizens are,” says University of Virginia psychologist Shigehiro Oishi, summarizing the findings, which will be published in an upcoming issue of Psychological Science, a journal of the Association for Psychological Science. Oishi conducted the study with Ulrich Schimmack of the University of Toronto at Mississauga and Ed Diener, also at University of Illinois and the Gallup Organization.

The researchers analyzed the relationship between tax progressivity and personal well-being in 54 nations surveyed by the Gallup Organization in 2007—a total of 59,634 respondents. Well-being was expressed in people’s assessments of their overall life quality, from “worst” to “best possible life,” on a scale of 1 to 10; and in whether they enjoyed positive daily experiences (such as smiling, being treated with respect, and eating good food) or suffered negative ones, including sadness, worry, and shame. Finally, the analysis looked at the participants’ satisfaction with their nation’s public goods, from schools to clean air.

The degree of progressivity was measured by the difference between the highest and lowest tax rates, corrected for such confounding factors as family size, social security taxes paid, and tax benefits received by individuals.

The results: On average, residents of the nations with the most progressive taxation evaluated their own lives as closer to “the best possible.” They also reported having more satisfying experiences and fewer discomfiting ones than respondents living in nations with less progressive taxes. That happiness, Oishi says, was “explained by a greater degree of satisfaction with the public goods, such as housing, education, and public transportation.”

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Does a concept for a tax that eliminates the obstacles, including the most important of all,
taxing the RICH, exist that is truly fair, simple, lucrative for the government and practically
free for the government to organize and control? Yep, it sure does.

Not to take credit for a concept that was actually used and proved to attend the government’s
need to receive more revenue, yet, simple, even transparent and fair to the tax payers was
developed and utilized in Brazil by the ministry of finance during the early 90s. This system to-
tally eliminated the equivalent of our Social Security debt and Medicare debt within 7 years.

How does it work? Extremely simple. Maybe the title given to this tax will facilitate peoples
understanding, which is: “ TAX ON FINANCIAL MOVEMENT”. What does this mean? It means
that every time someone pays or receives a payment by means of a check, wire transfer,
debit card or credit card, a tax of 0.0025% is charged. That’s right, only ¼, ( one quarter of one

The system relies on a structure that is already in existence, thus, the government has to invest
practically nothing to get the system working ……. The structure of the Banking Network. Since,
all transactions must in one way or another pass through a bank and or the Central Bank, all you have
to do is alter slightly the programs that banks utilize to control the flow of payments and receipts in
a way that the bank becomes the tax collector. Every transaction, which the banks have to process
anyway, the banks would charge 0.0025%. The bank would simple deposit this revenue in a special
account which is controlled by the auditors of the U.S. government.

Why is this tax considered to be a FAIR TAX? For a simple reason, simply because who transacts
larger volumes of money, will pay more to the government, as far as the accumulative amount is
concerned, and who transacts in smaller volumes will assist in accumulating smaller amounts. The
beauty of the system is:

1. No bureaucracy
2. 100% controlled via the automation system already installed by the banking system.
3. Easy to get the system working in a very short period of time.
4. Every transaction has a receiving aspect and a payment aspect, by which the U.S. government
would receive 0.005%.
5. Does not pass on to the consumer a heavy tax burden.
6. Does not offer any additional advantage or disadvantage to any specific social class, thus,
removing the political turmoil from the process.

Here is a simple example of two transactions, one made by a millionaire another by Joe, the common man.

Mr. George Smith 3 – decides to purchase US$ 100,000,000 in equipment for his factory. He will be charged
upon closing the leasing agreement in the amount of US$ 500,000 and the seller of the equipment would
also be charged the same amount, US$ 500,000. Our federal government would receive a revenue of
US$ 1,000,000. A very small tax contribution.

Mr. John Doe, goes to the supermarket and spends US$ 100 on groceries. He and the supermarket will be
charged in US$ 0.25 and our federal government would receive US$ 0.50 on the transaction. Who cares
about US$ 0.25, you can’t even buy a soda with that kind of money.

For the government it is a wonderful system because in our modern world, everyday, more and more people
are forced to forget about “cash” transaction and are obligated to use other means, all controlled by the banks.
But let us say that John Doe did pay cash for his groceries, there would be no charge of the Fair Tax for his
transaction. However when the supermarket purchases product in order to restock their inventory, for sure
it will be paid with a nominal check, and thus the Fair Tax would be charged and collected.

Of course, the suggestion above is simplified, because I do not expect a respectable editor and journalist
to waste his time reading a suggestion from a totally unknown author, but, what do you think?

In closing, I would eliminate completely the federal tax system of today and would only permit that the state
sales tax system continues, as a stimulus for local expansion. If you do your math and study how many times
or hands that money was exchanged before your I-PAD finally showed up in your hand, you will see that the
Fair Tax system will be much greater than that of the present system with no need to get involved in discussing
the death tax, profit on the sale of property, tax breaks. None of these current preoccupations would exist, and
I am sure that John Doe won’t even worry or waste his time thinking about how much he contributed to our
glorious country, the U.S.A..

Thank you for your kind attention, and I hope that in some way my contribution will help us get out of all this
time wasting so that we can clear our minds and concentrate of making the locomotive, our economy, grow,\
and expand, creating the jobs that we so badly need.

Good Evening;

Robert E. Grant
[email protected]

Posted by: ROBERT E GRANT | Sep 21, 2011 1:09:18 PM

In our country of the working poor and billionaires one tax rate for all could never be considered fair. Progressive tax rates are the best possible attempt at being fair. Measure fairness by the burden not the rate. Our old fashioned grandparents knew progressive rates were the only way to go.

Posted by: DZ | Sep 8, 2011 4:11:34 AM

Wow, this is what passes for scholarship today?

Did they skip statistics 101 where you learn that correlation does not equal causation? I am sure glad that tuition money helps to support groundbreaking and useful studies such as this!

Posted by: Todd | Sep 7, 2011 4:31:34 PM