To what extent should high income earners be taxed more than low income earners?

However, according to the best evidence, high income “taxpayers’ response to tax increase is sufficiently modest” (Huang, 2012:4), and policymakers should not worry that higher taxes in top earners will reduce revenues. Likewise, an extensive empirical literature on the subject of the relationship between income tax rates raises and business behavior “largely suggests that higher tax rates are more likely to encourage, rather than discourage, self-employment” (Gravelle, 2010:9) and entrepreneurship. An issue that should be also taken into consideration, when it comes to taxation and, especially, tax increases for high income taxpayers, is capital taxation. “Capital gains have to be subject to tax at the same rate as income, albeit with some appropriate reliefs provided” (Murphy, 2009:216).“A straightforward argument for taxing capital is that it is often difficult to distinguish between capital and labor incomes” (Diamond and Saez, 2011:181). An individual with own small business can easily convert labor income into capital income to some degree. A good example can be found in Finland, where significant shifts of laborincome to capital income among the self-employed took place owing to the 1993 tax reform leading to a dual income tax with a lower rate on capital income (Pirttilä and Selin, 2011).It is obvious that in order to reach welfare of the society it is essential to use a progressive tax system. Top earners should pay more than low income taxpayers in a greater way than just the proportional one. It is the only way to reach equality and avoid fracture of the society. “Many policymakers and pundits assume that raising federal income taxes on high-income households would have serious adverse consequences for the economy. Yet this belief, which hasbeen subject to extensive research and analysis, does not fare well under scrutiny” (Huang, 2012:1). In fact, you should make taxation unequal to create an equal society, so the rich would not get richer and the poor would not get poorer. It is also important to make tax policy more transparent as it is in Scandinavia and make tax agencies more attractive, so that taxes would not be seen as something negative. As for calculating to what extent top earner must pay more in taxes, it is crucial to look at the countries where the progressive tax system works. According to the findings presented in The Spirit Level, these countries are Japan, Sweden, Norway and Finland with the most equitable and harmonious societies (Ballas et al, 2014:104). 2361 wordsBibliographyBallas, D, Dorling, D, Nekaya, T, Tunstall, H and Hanaoka, K. (2014). Income Inequalities in Japan and the UK: A Comparative Study of Two Island Economies. Social Policy and Society, 13 (1), 103 — 117.Burman, L.E. (2011). Tax Reform Options: Marginal Rates on High-Income Taxpayers, Capital Gains, and Dividends. Retrieved 19th March 2015 from: http://www.urban.org/uploadedpdf/901447-Burman-Tax-Reform-Options.pdfCloutier, R.Do Tax Cuts Stimulate the Economy? Retrieved 18th March 2015 from: http://www.investopedia.com/articles/07/tax_cuts.aspDiamond, P, and Saez, E. (2011). The Case for a Progressive Tax: From Basic Research to Policy Recommendations. Journal of Economic Perspectives, 25(4), 165-190.Gravelle, J.G. (2010). Small Business and the Expiration of the 2001 Tax Rate Reductions: Economic Issues. [pdf]. Congressional Research Service. Retrieved 19th March 2015 `from: http://assets.opencrs.com/rpts/R41392_20100903.pdfGethard, G. (2009, 26th October). Should U.S. Switch to a Flat Tax? Investopedia. Retrieved 18th March 2015 from: http://www.investopedia.com/articles/tax/09/flat-taxes.aspHuang, C. (2012). Recent Studies Find Raising Taxes on High-Income Households Would Not Harm the Economy: Policy Should Be Included in Balanced Deficit-Reduction Effort. [pdf]. Washington, DC: Center on Budget and Policy Priorities. Retrieved 18th March 2015 from: http://www.cbpp.org/files/4-24-12tax.pdfKunieda, S. (2013).New Optimal Income Tax Theory and Japan’s Income Tax System.The Japanese Economy,39 (4), Winter 2012—2013, 60—78.Mangan, H.What is the Fair Tax Act Explained — Pros and Cons. Retrieved 18th March 2015 from http://www.moneycrashers.com/fair-tax-act-explained-pros-cons/Murphy, R. (2009). The Road to Progressive Taxation.Public Policy Research, December 2008—February 2009,211 — 216.Pirttilä, J and Selin, H. (2011). Income Shifting within a Dual Income Tax System: Evidence from the Finnish Tax Reform of 1993.Scandinavian Journal of Economics, 113 (1), 120 —144.Saez, E, Slemrod, J and Giertz, S.H. (2010) The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review. [pdf]. Retrieved 18th March 2015 from: http://eml.berkeley.edu/~saez/saez-slemrod-giertzJEL10round2.pdfStinson, J. (2008, 18th June). How Much Do You Make? It’d Be No Secret in Scandinavia. USA Today. Retrieved 19th March 2015 from: http://usatoday30.usatoday.com/news/world/2008-06-18-salaries_N.htm