Many traffic violations, such as speeding, parking illegally, or having broken vehicle lights, will result in a small criminal fine. This fine does not scale to income. Many argue that these small fines will not serve adequate deterrence to wealthy people.
Should the rich pay higher fines? My first instinct is to say no. The whole point of being rich is that you can afford more stuff. You produce more value, therefore you can have more goods and services.
The same goes for fines. A particular offense imposes an average amount of damage. If the benefit to offender is more than that, then we have a net economic benefit if he commits and pays. By setting the damage done to the fine, we get the efficient result, and income is irrelevant.
John Lott carries this argument further. He observes that rich people, on average, are less likely to face penal punishment since they have better lawyers. He claims that this is an efficiency of our legal system. A couple of weeks in jail represents a much higher dollar cost to a rich man than a poor man, so if we want to face the same expected cost we must offer the rich man a lower probability of conviction.
Unfortunately both of these arguments ignore enforcement costs. Once these taken into account, the optimal punishment depends not only on the damage done but also on the difficulty of deterrence. It takes higher punishment to deter a rich criminal than a poor one. It may make sense to subject higher punishments to richer people to take some burden off of enforcement costs.
What about theft? Stealing $100 has equal payoff to both the rich and the poor, so the same fine should deter it. However, the time required to steal is worth more to the rich man than the poor man. In the time the rich man could have been stealing $100, he could have produced more at his job which pays a lot more. Therefore, for theft, the rich should be deterred by a lower fine than the poor.
Contrast that with brawling or speeding. The money value of the offense is higher to the rich (speeding because it saves him time, and brawling due to revealed preference — if he took the same time as a poor man to brawl then it must be worth more to him). A higher fine is needed to deter him. That may be a good argument for imposing higher fines on the rich or creating having equal probability of penal conviction.
With petty crimes, like low level theft, it may not be worth punishing the rich at all. The time wasted should be punishment enough.
There is another implication: we should replace jail time with fines for the rich. Fines are always a more efficient punishment than imprisonment or execution. Fines transfer resources from the convict to the government, while imprisonment requires the government to spend resources and the convict to lose time, a net loss. One point of imprisonment is that it can deter poorer criminals who are immune to paying higher fines. Since the rich can pay those fines, they should do so. Even if neither man can pay the fine, the rich one should still spend less days behind bars. A given dollar punishment will equate to less days in jail for higher income earners, and will save on enforcement costs.
However, as Lott pointed out, convicting rich criminals is more expensive, due to their better lawyers. This new cost may require us to allow the rich to get away with smaller non-theft crimes like being drunk and disorderly.
However, Lott’s point shows that imprisonment may help prevent repeat offenses. Once a criminal is locked up, their opportunity to reoffend goes down dramatically, which can save on the costs of catching the criminal and the cost of court for what would have been future convictions.
It seems that it is in fact efficient to charge the rich higher fines in some situations, while in others we should avoid enforcement, punishment, and court costs by not punishing them at all. However, those at risk of repeat offenses can be locked up to prevent future offenses.
Source: Law’s Order by David Friedman. This post heavily leans on Chapter 15 — Criminal Law, specifically the subsection titled “Should the Rich Pay Higher Fines?”.
Updated 2020-06-03 (added the use-case of imprisoning to prevent repeat offenses)