Nobody Knows How Much is “Fair” to Tax the Rich

So far, Republican presidential nominee Mitt Romney has done a remarkable job of sticking to his message, focusing on economic growth, job creation, and now repealing ObamaCare. President Barack Obama, on the other hand, has largely run a campaign of distractions, using an “issue of the week” approach to attack Romney and to draw media attention away from his controversial record and the ailing economy. However, if you had to pick out a more substantive message for his campaign, it would have to be “fairness.”

President Obama has hammered on the point of “fairness” over and over since campaign season began last fall. In one of his better-known speeches, the president laid out a clear picture of his “fairness” agenda:

“I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, and when everyone plays by the same rules.” – President Barack Obama, campaign speech at Osawatomie, Kansas, December 6th, 2011.

We can discern three distinct parts to the president’s “fairness” agenda. First, something along the lines of equal opportunity so that everyone gets a “fair shot.” Although I think the idea of equal opportunity is ultimately debatable, most people would agree that people should get a fair shot at success. After all, American is the land of opportunity, right? Skipping ahead to the third part, everyone playing under “the same rules” is just equality under the law, which was one of the most important ideas to influence the Founders. So, that’s fine.

But what about the second part, in which “everyone does their fair share?” In the abstract, there’s nothing objectionable about it. In practice, however, there’s a lot of disagreement about what exactly constitutes “fair.” Even on the left, politicians are disagreeing about what’s fair.

Of course, they’re not disagreeing about what’s fair for low or middle-income Americans to pay. Their answer is usually less, regardless of how much the government is spending. Obviously, that’s pretty popular. The real disagreement is over how much is fair for wealthy Americans to pay in taxes. With the 2001 and 2003 tax cuts about to expire at the end of the year, that debate has shifted, and now they’re just trying to determine who’s actually wealthy in the first place.

President Obama has repeatedly argued that those American with an income above $250k are rich, and that they can pay more. Senate Democrats set the number even lower, at $200k for individuals, although they raise it to $250k for families. Some Democrats running in competitive races have put the number at $500k. House Democrats, led by Nancy Pelosi, have fought for the Buffett rule to raise taxes on those making more than a million dollars annually.

So, just among Democratic politicians in the federal government, there’s a tremendous disagreement over who’s rich and who’s not. Nobody agrees. If you were to expand the debate to America at large, you’d probably get a million different answers to the question.

Now, let’s push that disagreement aside for a moment and consider how much is fair to tax the rich. In order to do that, we need to understand why there are taxes in the first place. Simply put, we need taxes in order to pay for government, and we need government in order to secure our natural rights. In March, the Congressional Budget Office estimated that the government would bring in $2.456 trillion in revenue for 2012. That’s a lot of money.

The problem is that CBO estimates that the federal government will spend $3.627 trillion this year, thereby leaving us with a jaw-dropping projected budget deficit of $1.171 trillion. With our national debt rapidly approaching $16 trillion, or more than 100% of our Gross Domestic Product, we’re obviously in fiscal trouble. So, are Democratic ideas such as the Buffett rule an understandable attempt to address the deficit?

Unfortunately, no. The Joint Committee on Taxation estimated that the Buffett rule would only raise $46.7 billion over the next decade, and even the White House has admitted that deficit reduction is not its purpose. So, if Democrats don’t want to raise taxes in order to pay for government and to reduce the deficit, why do they want to raise taxes?

“Economic justice.” It’s not fair for the wealthy to have so much money and to make so much money when so many Americans are struggling to make ends meet in this economy. In other words, they’re taking a page out of Occupy Wall Street’s playbook. Taxation is no longer for the purpose of paying for the legitimate duties of government, it’s vindictive. Income inequality is the real problem, and hiking taxes on the rich is the proposed solution.

So, back to the question of how much is the fair amount to tax them. Since we’re now worried about “economic justice” and not just paying for government, we’re in a sort of no man’s land as to the answer. Really, the answer could be whatever you personally feel is “fair.” As we’ve already determined, there’s no universal answer as to what’s fair and what isn’t, so this is a subjective question.

Well, let’s figure out how much wealthy Americans are paying already. I’ve actually touched on this subject before, so I’ll just go ahead and quote that here:

“…Looking at the numbers from 2009, the top 1% of earners paid 36.73% of income taxes. The top 10% of earners paid 70.47% of income taxes, and the bottom 50% of earners contributed only 2.25% of income taxes. In fact, the bottom 47% of earners paid no income taxes whatsoever, which is an oft-disputed statistic that PolitiFact.com has verified.

…Should the top 10% of earners pay 90% of all income taxes? How about 100%? Shouldn’t 47% of Americans contribute something in order to do their fair share?”

Clearly, the wealthy (and the upper-middle class) are already paying a massive percentage of taxes. While I disagree with the current Democratic proposals to hike the income tax rates for wealthy Americans, I don’t believe that they’re particularly radical. We’ve had higher taxes than what they’re suggesting, and we managed to achieve solid economic growth despite it.

Here’s the real problem: There’s no guiding principle behind this tax hike beyond “economic justice,” which again is subjective. So, while the current proposals may not be radical, there’s no reason for the left not to demand significantly higher tax rates going forward if we acknowledge that “economic justice” is a sufficient basis for a tax hike.

Consider tax rates during World War II. Personal tax rates shot up to 91%, and President Franklin Delano Roosevelt demanded that they rise to 100% on incomes over $25,000. Perhaps these rates could be understandable during a time of war, but after the war many Democrats fought to keep the rates in place. They believed it was only fair.

Conservatives must fight against the doctrine of “economic justice.” We must restore the proper purpose of taxation: to pay for the legitimate functions of government. If conservatives accede to the principle that the government can hike taxes simply to reduce income inequality for a more “fair” society, there’s no true limit or guiding principle for how high taxes could climb.

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About Daniel Anderson

I am a 21 year old Michigan native completing the final year of my undergraduate education at Hillsdale College. I tend to categorize my political philosophy as "constitutional conservatism." I also advocate free-market economics.
This entry was posted in Budgets, Campaigns, Deficit and Debt, Economics, Politics and tagged , , , , , , , . Bookmark the permalink.

3 Responses to Nobody Knows How Much is “Fair” to Tax the Rich

  1. bjohnson1 says:

    Regarding taxing the rich “fairly,” consider this historical note. Thomas Jefferson had indicated that, at one time, the federal government had operated entirely on taxes which the rich paid for on imported goods.

    “The rich alone use imported articles, and on these alone the whole taxes of the General Government are levied. … Our revenues liberated by the discharge of the public debt, and its surplus applied to canals, roads, schools, etc., the farmer will see his government supported, his children educated, and the face of his country made a paradise by the contributions of the rich alone, without his being called on to spend a cent from his earnings.” –Thomas Jefferson to Thaddeus Kosciusko, 1811.

    HOWEVER …

    During this era of the rich uniquely bearing the burden for keeping the federal government running, Congress was likely taxing and spending only to fulill its Article I, Section 8-limited power duties. In fact, Justice John Marshall had officially clarified that Congress is prohibited from laying taxes in the name of state power issues.

    “State inspection laws, health laws, and laws for regulating the internal commerce of a State, and those which respect turnpike roads, ferries, &c. are not within the power granted to Congress.” –Gibbons v. Ogden, 1824.

    But I don’t know if patriots forced corrupt Congress back into its Section 8-limited taxing and spend cage that taxes paid by the rich on imported goods would be enough to run the federal government.

  2. bjohnson1 says:

    Mea culpa. I posted the wrong excertp from Gibbons v. Ogden in my previous post. Here’s the relevant excerpt.

    “Congress is not empowered to tax for those purposes which are within the exclusive province of the States.” –Justice John Marshall, Gibbons v. Ogden, 1824.

  3. gracie says:

    Just a couple points in no particular order.

    First, terms such as rich, wealthy, middle-class, working-class, etc. are meaningless when it comes to taxes. We are a nation of tax brackets. If brackets aren’t specified, the discussion is meaningless.

    Two, “income equality” and “tax fairness” are not the same thing and shouldn’t be used interchangeably.

    Three, not all money is equal. An annual salary of $50,000 (reported to the IRS) is worth less, after tax, than an annual capital gain of $50,000 (reported to the IRS), after tax, which itself is worth less than $50,000 cash paid under the table and of course never reported to the IRS.

    Four, and then there’s the wonderful world of deductions, depreciation, carried interest, etc! That way lies hell. :-)

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