A taxation system simply cannot take account of the millions of variations within a population which base an individual’s relative value for money. A progressive taxation system only looks at quantitative variations, but attempts no further nuance, insofar as qualitative variables are concerned. The second person may have a greater subjective value for money, but even according to a progressive taxation system, the ‘relative value’ of money would not be appreciated between the two people.

Yet, take two people of equivalent income one was born into privilege and had the resources and connections to become successful, whereas the other came from an underprivileged background and had to work harder in order to reach the level they are at. Yes, someone with a lower income may value each Pound they make more than someone with a higher income. Firstly, the argument itself identifies the value of money as being subjective, making the ‘relative value’ of money difficult to define. However, I submit that despite the noble and equitable sentiments of this view, there are several flaws within this argument.

To elaborate, we should observe that a progressive taxation system is attempting to estimate levels of essential and disposable income and tax accordingly. This is why proponents of such an argument will often support a progressive taxation system, intended to embody this ‘relative value’ argument. Therefore, a flat tax hits those with a lower income harder, and fails to appreciate that money has a different value at different levels of income. Essentially, this means that as a person increases their income, each individual Pound will become subjectively devalued and marginal utility will decrease. In contrast, an individual earning £100,000 a year will pay £10,000 in income tax and still have £90,000 to live on.

Thus, if we imposed a flat tax of 10% for example, then an individual earning £20,000 a year will pay £2000 in income tax, and have £18,000 to live on. A flat tax is incapable of doing this because the value of money is relative to each individual. Notable economic commentators have argued that a ‘fair’ taxation system is one which makes the paying of taxes ‘equally’ painful for everyone. Let us begin by discussing one of the strongest arguments against a flat tax.

Modified flat tax