Joshua Livestro reports that the Swiss canton of Schaffhausen has instituted a regressive tax structure in which marginal tax rates go down as residents earn more money -- they pay less in taxes on each dollar earned than they paid on the one before it.
I think it's a great experiment, and the canton's government is hoping that rich folks will pour in in response to the new system. That sounds like a reasonable expectation. The real question is whether or not such a system will increase net tax revenue across the entire country, or simply move revenue around. Either way, assuming the Swiss have an American-like competitive state/canton government structure, Schaffhausen will benefit and others may soon follow suit. I've written before that I don't want to maximize government revenue, but I am in favor of tax cuts even if they do end up giving the government more money. Hopefully we'll see positive results from Schaffhausen's experiment in a few years.
Mr. Livestro also makes the argument that regressive tax systems are more moral than progressive systems because they encourage people to be productive.
The morality of it is easy enough to explain. It is after all fairly widely accepted that working hard and saving for a rainy day both constitute morally good behavior. Any tax system that claims to have its basis in morality would therefore have to encourage precisely those activities. Whatever else they might like to say about it, the taxaholics would have to admit that the Schaffhausen income tax does exactly that -- and does it in spades. Who wouldn't want to go out and work, work, work, if every extra Swiss Franc earned will be taxed less than the previous one?That makes sense, and the morality he espouses is one I agree with, but I still don't think the government has any business using the tax system to coerce people. I think that a flat income tax or a consumption tax would be best, and least intrusive. I don't think the government or the public should how much money I make or treat me any differently because of it.
