The fact is.....the wealthy tend to have a higher percentage of disposable income....this says it best: * In a market economy, the larger an investment is, the higher its rate of return. This is due to both economies of scale and the increased range of investment opportunities. In addition to these economic forces, those who control greater amounts of capital within a society are able to participate more directly in shaping government policy, often in ways that further maximize their wealth. Thus, due to both economic and political realities within a market economy, it is a natural process for the wealthiest individuals and firms in a society to become disproportionately wealthier over time. In order to prevent the political instability resulting from the natural stratification of the populace into an ever smaller and wealthier aristocracy or moneyed class, and an ever larger working class, all free market democracies engage in progressive taxation and programs to enhance economic opportunity for the lower and middle classes.
* In response to the concern that progressive taxation creates an unfair psychological burden on the wealthy, it is argued that if the utility gained from income exhibits diminishing marginal returns, as many psychologists assert (see Weber-Fechner law), then for the tax burden to be shared in a utilitarian way the tax-bill must increase non-linearly with income.
* As income levels rise, marginal propensity to consume tend to drop. Thus it is often argued that economic demand can be stimulated by reducing the tax burden on lower incomes while raising the burden on higher incomes.
* It is also argued that people with higher income tend to have a higher percentage of that in disposable income, and can thus afford a greater tax burden (this is the “vertical equity” argument). Some would claim that a person earning exactly enough money to pay for food and housing cannot afford to pay any taxes without it causing material damage, while someone earning twice as much can afford to pay up to half their income in taxes.
* Some believe that the wealthy have a disproportionately greater interest in maintaining societal goods typically supported by taxation such as security of property rights, defense and infrastructure, as they have much more to lose if these fail than do the poor. Public investments in defense and foreign aid often support assets abroad whose expropriation is a far greater risk than is the risk involving domestic investments.
* A progressive tax is an automatic stabilizer in the sense that if a person were to suffer a decrease in wages due to a recession then the money regained by being in a lower tax bracket lessens this blow.
* It is inherent in tax policy that it implements economic and social policy. People who are concerned about a runaway, cancerous character in the global economy, greenhouse gases, etc., see benefits in progressive taxation, both in its braking effect on the economy and in helping shape economic activities towards necessities more effectively than purely monetary or fiscal policies.
* As long as after-tax income is a strictly increasing function of gross income, there is a monetary incentive to increase compensation received. Indeed, for any particular income goal, the higher the tax rate, more compensation one must receive to reach that income goal. For this reason, progressive income tax may increase the incentive to produce among the largest producers (if higher production is truly associated with higher compensation).
* A progressive tax reduces income inequality, which has been reported to have a number of societal benefits, such as lower homicide rates at all income levels. Richard Wilkinson argues that in a more unequal society, even middle class people on good incomes are likely to be less healthy, less likely to be involved in community life, more likely to be obese, and more likely to be victims of violence. Amongst the wealthiest quarter of countries, there is no relation between a country's wealth and general population health, but within a country, relative levels can have an effect.
http://en.wikipedia.org/wiki/Progressive_tax
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