It not the amount of taxation that causes a problem, it's what you get for your money. But that's another paper; here we discuss the reasons for taxes.

1. Protection of the common good: military, police, social services, roads and other public transportation, pollution control, leveling playing surfaces for business and individuals, food and drug inspection, etc.

2. Control of the economic direction: directing investment to interstate highway construction instead of pleasure yachts, encouraging local bond issues by making them tax free, paying for military research, reduced rates for capital gains taxes, deductions for business entertainment, etc.

3. Redistribution of wealth geographically: military spending for bases in non-industrial areas, social security and welfare, interstate road building, rural electrification, etc.

4. Redistribution of wealth between economic classes: progressive income tax rates, luxury taxes, social security, business taxes, etc.

NOTES

1. Common Good

Although many people believe the single purpose of taxation is raising monies for the common good, the three other uses of taxes are always present. As money is first siphoned off for interest and elderly benefits, determining what is necessary at what spending levels increases in importance for what is left. Should a certain percentage of the economy be reserved for common good expenses? What should the maximum percentage of budget for interest payments? And what is the common good anyway?

2. Economic Direction

You automatically do if you don't! Laissez faire is a definite form of control favoring big business over individuals and entrepreneurs. The setting of large central goals is always more powerful then many smaller goals which usually do not coincide or build upon one another. Settings of national goals provides coordination between areas that otherwise are very separate. Lofty goals of making businesses completely independent (and the most fun for the management) are not necessarily what is best for society or members of that society. Each side says they are "leveling the playing field" for everyone. In the end, the government, the social commonality, wins. 

Remaining untrue in a wealthy capitalistic society is the notion put forth by business cowboys that active participation in the direction of the economy by national/local governments or do-good private organizations to channel business in a particular direction interferes with the number or quality of entrepreneurs or profits of big business. Government directed spending can increase the wealth of a society with lower-cost, high-impact projects like the Tennessee Valley Authority or the Cross-Bronx Expressway.

3. Geographical Redistribution

Without geographical redistribution, in a very short economic time frame, the entire country would pass ownership to the big urban centers such as New York City, Chicago, Houston, Los Angeles, Seattle, etc. Areas such as the South that suffered many years of poverty after the Civil War couldn't previously compete for ownership with the wealthy North. Vitally important to democracy, controlling concentrations of economic power, the redistribution of wealth geographically remains just as important as redistribution to economic classes.

4. Economic Class Redistribution

A capitalistic society must be consumer driven: the consumer must have enough wealth to consume beyond the absolute necessities of life. By definition the upper economic classes have more interest in obtaining wealth, holding on the wealth, and generating more wealth for themselves. They hire the best people to manage and invest their money - the greater the wealth managed the greater the possibility of attracting more wealth through hiring better money managers and taking of greater risk - and other methods not available to the general middle class. If left unattended, without progressive taxation, these wealthy individuals and companies would slowly own everything leaving the consumer without purchasing power. And thus destroy the capitalistic society which built the upper class.

An important aspect of the consumer society is credit. Credit, however, inherently carries the idea of transferring wealth from the consumer to the wealthy who have the resources to lend money. The higher the real interest rate - the difference between the rate of inflation and interest rates - the greater the transfer of wealth. Soon the consumer finds so much of their resources dedicated to the transfer of wealth they no longer can consume: a major cause of economic cycles. Important question: does an optimum tax rate, thus setting the amount of wealth (%) owned by the wealthy, that would keep returning enough wealth to consumers to keep consumption at the proper level for maximum economic growth? Another important question: should concentrations of economic wealth be allowed to exist in corporations? Or would the wealth be more productive in the hands of individuals?

OTHER NOTES

Ø All national economic entities fall into three categories: 1. too poor to invest, 2. only enough wealth to centrally control investment to break the cycle of poverty or for consumption by a limited ruling class, or 3. enough wealth so anyone may invest in any manner without regard for society. The poorest entities distribute goods by religion - Moslem, Hindu, etc. The middle wealth countries use oligarchy, communism, tribal, or military dictatorship. Soviet communism didn't fail. If it had failed, they would still be communists and experience central economic control. The three important items break the cycle of poverty: education, communications, and wealth accumulations. These items reached cusp levels enabling the Soviet middle class to demand more freedom. if wealth declines in any of the newly anointed capitalist areas centralized control over the economy must reestablish itself. ( Note: I originally wrote this paper in 1900-92. It's amazing to observe the Russian manifestations following exactly as this theory predicts 15 years later. Actually, I haven't found any exceptions to the Three Economic Societies in 15  years.) Everyone in the world would prefer to be a capitalist; by definition you would be wealthy!

Ø       International trade deficits are caused by the lack of common taxation to equalize the flow of wealth. If Japan and the U.S.A. were under the same taxation umbrella the flow of wealth represented by the trade imbalance would be a non-issue as it is for the flow of wealth to urban centers financial centers or manufacturing centers in any country.

Ø       Most likely a mathematical determination of the distribution of wealth and taxes providing maximum benefit to economic growth and maintenance can be ascertained. The mathematical model would, however, be under constant political attack, especially by the wealthy that would think they work only for other peoples' benefits - which actually is their job.