The late Mitch Hedberg was one of the best one-liner comics who has ever lived. In this clip, he explains the concept of marginal utility more concisely than anyone I've ever heard attempt it. The first pancake is great, the second pancake is good, but the fifth pancake brings you almost no benefit whatsoever.
What does this have to do with tax rates? Think of dollars instead of pancakes. For someone who doesn't have much in the way of assets or income, each additional dollar that person acquires is of more value to him or her than someone who has lots of assets and income.
Consider Herman Cain's cartoonish 9-9-9 plan. Under it, everyone would pay 9% income tax. Someone making $20,000 per year would pay $1,800 to the federal government, leaving $18,200 left over for everything else. That could be the difference between having a car or not, or having an important medical procedure done or not.
Now think about someone making $200,000 a year. That person would pay $18,000 per year to the federal government, leaving $182,000 left over for everything else. This person may or may not even miss the income tax given the abundance left over depending on how closely that person manages his or her finances. The tax rate for both people is the same, but the amount paid is more precious to the first person than the second.
That's one reason why we have a progressive tax system where the rich pay more than the poor. It goes beyond non-quantifiable things like "fairness". It's better for the rich to pay more because the amount of marginal value they lose with each additional dollar assessed in taxes is much lower than that of people who have much less.
tl;dr crowd, thanks for coming. You're dismissed.
