Another way of stating
krimson's writeup is simply: "Taxing $10K from a person whose income is $100K produces more
revenue and less unhappiness than taxing $5K from someone whose
income is $15K."
But that's neither here nor there. I would prefer to reply to Cletus the Foetus' writeup. Although I agree in general with him, there are some specific statments that I quite disagree with. Specifically:
In point 1: "The fulfillment of envy is *not* utility!"
Actually, it is. We are defining utility for the sake of this discussion to be happiness and well-being. Envy is something that produces unhappiness. So to remove that unhappiness is to increase utility. Of course, that action may have other effects that create unhappiness in other ways, but on the face of it, your statement is incorrect.
In point 2: "some people are money sink-holes"
Specifically, you mention alcoholics and other drug addicts. How is an alcoholic a money sinkhole? She goes to work, earns money, and spends it, just like anyone else. If capitalism produces that which people want, and people want alcohol, it will produce alcohol. You can't claim that capitalism leaves people free to make their own decision but that people must make certain decisions for the good of capitalism.
In point 3: "The same silly argument could be made in favour of slavery."
Perhaps. The problem with slavery is that freedom makes people happy, so that enslaving certain people would have to put other people in a state of unending bliss in order to balance things out, utility-wise. Combined with the difficulties in maintaining a state of slavery, as well the dehumanizing aspects of the matter, it means that a system of slavery will never produce an increase in utility.
This is not to say that freedom trumps utility as a value. If it made people happier on balance to have a slave class, then having a slave class would be the right thing to do. To be unfree and happy is better than being free and unhappy. You cannot say that it is impossible to be unfree and happy, since you have above suggested that a lack of leisure time can keep the poor from being depressed.