Why Tax the Rich?

Is it unfair to tax the rich to bridge the wealth gap? It is at least mathematically an obvious answer that anyone can understand, but many oppose it because they feel it is unfair. Even those who are for it, don’t seem to have a convincing explanation for why it is indeed fair. I believe most people think, “If you are rich, you should be generous,” but nobody wants to be forced to be generous. In fact, it wouldn’t be generosity if they are forced. I think this is why many people oppose it.

Let’s say a bunch of us go out to dinner at a nice restaurant. We all shared the food and consumed about the same amount. Let’s also say your net worth is ten times mine. Would I expect you to pay ten times more than my share? No, I wouldn’t. As friends, we would expect to pitch in the same amount regardless of our financial statuses. If you volunteered to pick up the tab, that would be generous, but nobody should expect that of you.

I think this is how some people view taxation. But how exactly are they different?

Firstly, the ultimate purpose of a government could be thought of as protecting private ownership, not just land but any type of ownership. Without a government, there would be nothing to indicate or guarantee that my computer is mine and your car is yours. This is why Communism was such a scary idea for the rich. In China, almost overnight, this protection was removed.

This means, the greater your ownership (of any wealth/assets), the greater the burden is on the government to protect it. Naturally, the rich need to pay more taxes; it’s equivalent to the rich person eating a lot more of the food at the restaurant.

But more importantly, many people don’t seem to realize that the goal of societal rules isn’t to protect fairness. Take Formula 1, for instance. Casual observers might assume that Formula 1 is about building the fastest car possible. In other words, they believe it’s a pursuit of science and engineering, the rules of which are dictated by objective measures. In reality, this is not the case. They routinely change the rules just so that the race would remain competitive. That is, the goal isn’t to protect fairness but to maintain the enjoyment for everyone, audience and participants alike. Without these arbitrary changes, one of the teams will dominate the race forever. As a winning team, they would attract the biggest sponsors, the greatest engineers, and the best drivers. The gap would widen every year. It would be perfectly fair if the point of the race is to build the fastest car possible, but eventually, it would become pointless to watch, as there would be no doubt who the winner would be.

Likewise, the societal rules are not ultimately about ensuring fairness. It’s about making our society enjoyable. If the formula for taxation were about fairness, the rich would get richer, and the poor would get poorer, and there would be no stopping, as in my hypothetical example of Formula 1.

You might think the rich would continue to get happier, but that wouldn’t be the case. If the poor cannot survive, there would be no peace in our society. Nobody would be able to enjoy their lives. If we want our society to be peaceful, safe, and generally happy, we have to do the same thing Formula 1 does; set the rules, not for the sake of fairness but the health of our society. That’s what “social contract” is.

So, anyone who is arguing about fairness in discussing taxation is missing the point. A peaceful society is not grounded in the ideal of fairness; it’s grounded in the reality that nobody can live alone.