Friday, September 25, 2009

On progressive choices

Thankfully, the Frontier Centre for Public Policy's call for a flat tax was so bizarre and ill-timed that even the Sask Party couldn't use it as an excuse to move in that direction. But it's still worth pointing out part of the position taken by the Frontier Centre's David Seymour which deserves notice as a novel (if completely ill-founded) angle on the issue:
Seymour added that income is often a function of age, arguing that putting higher tax rates on higher income is just shifting the taxpaying to different stages of life rather than between people with different life fortunes.
Of course, Seymour doesn't appear interested in dealing with the cumulative impact of all taxes which results in an overall system that's barely if at all progressive. And on its face, there's ample reason for doubt about the argument that progressive taxes won't have some redistributive effect among individuals. But let's ignore those glaring problems with the argument and deal with income taxes alone on Seymour's footing.

Let's assume that an individual has the choice as to when to pay a fixed amount of income taxes during the course of his or her lifetime, but will have a "standard" income progression consisting of escalating income through his or her working life, followed by retirement at a lower income level.

From that starting point, which of the following seems like a more plausible statement?
(a) The individual would be best off paying a constant rate of income tax regardless of his or her income at any given time.
(b) The individual would be best off paying income tax at a rate which varies based on income, such as to pay a lower rate when money is tighter (early in his/her career and on retirement), and a higher rate when more money is available.

In effect, Seymour's argument relies on the premise that the population at large would take (a) as a given and prefer a flat tax as a result. But doesn't (b) actually make far more sense as a matter of rational self-interest?

(Edit: added link.)

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