HOW CONVENIENT THAT THIS QUESTION CAME UP. (Again, corrected some dodgy mathematics)

I think I'm gonna make this another long one I can direct people to.

Simply put, I don't think most people quite "get" taxation, so I think it should be put it simple terms:

If you want a service, you pay for a public service.
If you don't want a service, you don't pay for a public service.

If you want a low tax economy, you have less public services.
If you want a high tax economy, you receive more public services.

There is no such thing is a miracle low-tax, high-spend economy. All this achieves is an erosion of the tax base, huge accumulation of debt, and large amounts of deficit spending* when the economy gets rough, further piling up debt.

*One must note in classical Keynesian economics, some amount of deficit spending *is* desirable to give fiscal stimulus to an economy in recession, but only if money is saved during "good times"

The problem during these difficult times of cutbacks, is that people expect the same services, but they don't want to actually pay more tax for them. This simply won't work. There are no magical massive amounts of "waste" in the system, or this mystical notion of "cutting down the size of government", nor is there sadly this infinite amount of "fraud". If you cut spending, you cut services, you cut programmes, and generally speaking those cuts tend to be regressive (they affect less well-off people more).

Taxation should be progressive. If you do well from society, you should be prepared to give more back. This means, richer people should pay more tax. It is a delusion to think that by cutting taxes for rich people you stimuate the economy. You do not. You simply shift the tax burden further onto the middle class. The usual argument against "progressive taxation" is that it's "socialist" or whatever.

I don't think people quite get progressive taxation, I think the misconception is, the guy on $20,000 pays, say 15% tax on all his income, the guy on $50,000 pays 25% tax on all his income and the guy on say $250,000 pays 40% tax on all his income, or something. In other words, earning more is "pointless" or whatever. This is NOT how progressive taxation works.

Progressive taxation Example:

P.Tax works by taxing different bands of income at different rates:

So say you have:

$0 - $20,000 at 15%
$20,000 - $40,000 at 20%
$40,000 - $100,000 at 25%
$100,000+ at 30%

(These are completely made up)

For the guy on:

(1) $20,000

He obviously pays 15% tax, which is $3000

(2) $50,000

He pays 15% on the first $20,000 ($3000)
He pays 20% on the next $20,000 ($4000)
He pays 25% on the final $10,000 ($2500)

He pays $9500, which is an effective rate of 19%. NOT 20% or 25%.

Yes he pays more across his entire income as an overall percentage, BUT... the different bands on income are treated exactly the same.

(3) $250,000

He pays 15% on the first $20,000 ($3000)
He pays 20% on the next $20,000 ($4000)
He pays 25% on the next $60,000 ($15,000)
He pays 30% on the final $150,000 ($45,000)

He pays $67,000 which is an effective tax rate of 26.8%.

The total income yield is $79,500.

The reason tax is graduated in this manner is because for those on lower wages, every penny of their income goes into buying food, keeping a roof over the head, and that sort of spending. They do not have large discretionary incomes. Any tax increase will hit these groups hard. Those in the higher brackets, are much better equipped to cope. It is not a tax on success, as some people like to paint it as. These people benefit the most from society and thus it is only fair they should contribute more.

Some people would suggest that a flat rate of taxation is more fair... but is it?

To get the same total income yield of $79,500 requires a flat tax rate of 24.8%. We can call it 25%.

(1) $20,000

He pays 25% tax, which is $5,000

(2) $50,000

He pays 25% tax, which is $12,500

(3) $250,000

He pays 25% tax which is $62,500

In this flat tax scenario, the only people who benefit, are those with the most money. It is a regressive tax. The tax burden is significantly shifted onto the lower and middle classes who are less able to cope. There is a fallacy that if you cut the tax rates for richer people, they will invest it in jobs. Or that the money will "trickle-down". Shifting the tax burden onto the middle class has no benefit. It reduces demand within the largest pool of consumers. Even many capitalists would admit this.

There is nothing "fair" about this method of taxation (ironically the campaign is called "FairTax" in the US last I checked). Is asking a family struggling along on $20,000 to pay an extra $2k in tax, to subsidize a tax cut of $4.5k for someone comfortably wealthy "fair", on the assumption that this person or family on $250k will invest it in job creation or whatever. It's unfair and based on a fallacy.

There's more I could say, but that would probably delve into a broader debate.