Distortion in taxes runs both ways

The Tax Foundation gives its view on economic distortion in taxation. To make a long story short, the distortion is caused when the tax does not match the government services rendered. In the example they give, increasing the tax on roller coaster rides reduces consumption of roller coaster rides. Whether the reduction in roller coaster rides is justified depends on the government services required to generate roller coaster rides. Consider the opposite problem, if government subsidized a consumption, the demand for it, and the supply of it increase.

The implication of their analysis is that the Tax Foundation wants government to provide services that are only matched to the transaction, a fee for service model. If we apply this model, then what services can the wealthy obtain? None, unless they pay exactly the fee for services. The wealthy are not so disciplined, they seek government services as much, if not more, than the middle class if there is gain in doing so.

For example, under a broad based tax system, where is the government fee for earmarks? What is broad based about an earmark; it is not a service generally applied to the average taxpayer. So we enter a realm where a service provided by government may yield a 10% increase in private profits, but a 5% increase in taxes.

We need progressive rates to enforce discipline in the interaction between wealth and Congress.