I always thought the main purpose was to raise money for the services the federal government provides—defense, for example; and in more recent decades, entitlements.
As for the tax structure, its progressive nature was meant to be “fair” in the sense that people with an enormous amount of money could afford to pay a much higher percentage of it without feeling any sort of pinch. Whether or not you or I consider that fair, or whether we’d rather have a flat tax or some other arrangement, that’s been the way it’s worked for most of my life.
Back in 2008, when Obama was running for president, there was a big furor when he had a conversation with Joe the Plumber (remember Joe?), regarding Obama’s tax proposals:
“Your new tax plan is going to tax me more, isn’t it?” the blue-collar worker asked.
After Obama responded that it would, Wurzelbacher continued: “I’ve worked hard . . . I work 10 to 12 hours a day and I’m buying this company and I’m going to continue working that way. I’m getting taxed more and more while fulfilling the American Dream.”
“It’s not that I want to punish your success,” Obama told him. “I want to make sure that everybody who is behind you, that they’ve got a chance for success, too.
Then, Obama explained his trickle-up theory of economics.
“My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. I think when you spread the wealth around, it’s good for everybody.”
“Spread the wealth around” was the controversial phrase and was considered evidence of Obama’s socialist predilections, something he had previously kept somewhat under wraps. But it struck me, on reading this article at AEI, that such thoughts have now become unremarkable and mainstream in eight short years.
Our choice of a small progressive tax system has important policy implications. The relatively steep progressivity of our tax system tends to reduce income inequality by redistributing income from rich to poor. But the small size of our tax system pushes in the opposite direction, limiting the amount of redistribution that it can induce…
…[A] larger tax system could significantly reduce inequality even if it was not very progressive, particularly if the taxes were used to finance larger benefit payments to those with lower incomes. In general, the same volume of redistribution can be achieved with a smaller, more progressive system or with a larger, less progressive system.
There’s much more to the article, which is interesting in terms of what it says about our tax system compared with Europe’s. But what struck me most forcibly is how the authors seem to accept that a major and desirable goal of the tax structure is the same “spreading the wealth around” for which Obama was so criticized in 2008. And this is at AEI, a supposedly conservative think tank.