What Makes a Tax Fair?
Fullfrontal’s attempt to make us reflect on the conservative position on tax rates emboldens me to pose a troubling (at least to me) question: What makes a tax “fair?”
Liberals talk about the “fairness” of their tax proposals all the time. I still remember the Vice Presidential debate in which Joe Biden justified lowering taxes for those making under $250K and raising them for those making more as “just simple fairness.” Palin didn’t counter the point. She didn’t ask, “Joe, why would that be fair?” I doubt that it would have occurred to the moderator or anyone else in the media (even at Fox) to pose that question.
Why do we concede the word “fair” to the liberals when discussing tax policy? (I realize the FairTax movement also uses the term, but this seems more branding than substance. They base their arguments on the purported benefits of this means of taxation, rather than on any inherent fairness.) I’m sure that it’s not because we consider fairness unimportant when it comes to taxation. But often it seems that the conservative position on taxes is merely that they should be lowered by any means necessary.
Supply-side economics also makes us appear preoccupied with tax efficiency. The stock argument is that cutting taxes will spur growth and raising taxes will impede growth. Efficiency is not fairness, however, and giving the impression that economic growth is the sole criteria for tax policy leaves us open to arguments by liberals that their redistributionist policies will promote more growth than our reform proposals. Robert Reich has done this explicitly and the argument is implicit in Obama’s emphasis on government “investments.”
I believe that we need to agree on what fair taxation would be before reforming the tax system. Other criteria (such as efficiency, transparency and ease of administration) may trump fairness in developing a practical reform package, but the overall effect should be to make the system fairer. More importantly, we should be able to explain to the electorate why the proposal would be fairer.
Who are the conservative thinkers who have addressed this question? Is there an obvious answer that escapes me?
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Comments :
Jul '10
Re: What Makes a Tax Fair?
Slogans like "tax the rich" and "the rich should pay their fair share" are purposely vague. It allows anyone who is listening to plug in their own personal conception of "fair". Its the same phenomenon that explains the popularity of the "hope and change" slogan. Again the listener can plug in their own conception of hope and change without any specifics.
I think conservatives should take a different approach. We should define certain tax rates as unfair. For example conservatives could make this argument. Every American should have one day a week where their labor isn't taxed by government income and payroll taxes. Asking for 8 tax free hours out of a 40 hr work week is an argument conservatives can win.
Edited on Mar 27, 2011 at 9:53amFeb '11
Re: What Makes a Tax Fair?
I agree with your point on the liberals' approach. I should point out that I think Biden's honest answer to the unasked question would be "A fair tax is one that gets us elected." Which has nothing to do with fairness, of course. Liberals understand power, not justice.
I'm not sure about just setting a cap and saying that anything beyond that is "unfair." I remember an editorial in which Stephen Moore said most American's felt OK about paying 25% of their income in taxes. While that would certainly be better than what we have now, a quarter of our economy is a lot of money and I don't like giving anyone the idea that the government is entitled to it.
It's nice to think that we could have a day of tax freedom. But I think they'd just raise the taxes on the other four days by 25%.
Jun '10
Re: What Makes a Tax Fair?
The "Fair Tax" people hoped to disarm knee-jerk opposition with their label. They hoped to at least get people to read their proposals. Which are rational, transparent, productive, and, yes, fair - if the argument is that it is unfair to tax people who are struggling to survive whether through disability, inability, or stupidity. See the "prebate" in their proposal. It is now necessary to read three books to digest the full fair tax theory, the criticisms, and the rebuttals of the criticisms. This is still easier than actually making sure you filed your taxes correctly.
There are several interesting posts in this thread on taxes from several weeks ago.
Jan '11
Re: What Makes a Tax Fair?
The problem is with underlying assumptions. I believe the liberal assumption is that wealth is not created, it just magically exists; there is a finite amount of it; and that finite amount should be equally distributed to everybody. That's their "fair share": everybody gets the same size piece of the pie. And nobody baked the pie, it just appeared on the counter.
I'd love to see what happens to that argument when you ask a liberal whether that means he wants the 300 million people in the USA to share equally with the 1.3 billion in China, and how much his "fair share" would be then, but I can't pin one of them down enough to talk actual numbers.
Jul '10
Re: What Makes a Tax Fair?
Personally, I could care less if a tax is "fair."
What I want to see is a tax that is Just!
Such a tax would be equal for all citizens. A progressive tax scal is NOT fair, and it is NOT just.
In the spirit of compromise, however, I will allow for a threshold prior to imposing a tax (say $20K) on every dollar at a minimal percentage set to Optomize Revenue and Economic Activity.
Set the percentage too high and you choke economic activity and therefore revenue, set it too low and you will not have sufficient funds for operation of necessary government operations.
My guess would be a Flat Tax between 10 and 20 percent on all income over $20 K would be Fair and far closer to Just than what we currently have.
Feb '11
Re: What Makes a Tax Fair?
That thread is part of the reason I posted this. A lot of people said, in essence, "No discussion of taxes until we control spending." Taken literally, that means we'll never discuss taxes, because no conservative will ever concede that government spending is low enough.
Meanwhile, Obama has mentioned tax reform in his State of the Union address, and his Commission has recommended several reforms that leave the existing tax system in place. Why are we conceding this front to the liberals? There is nothing logically or politically inconsistent in pushing for both lower spending and a fairer tax system.
Feb '11
Re: What Makes a Tax Fair?
That's one of my standard rejoinders to someone in favor of progressive taxation. They typically say that the distribution of income in the U.S. is unfair. Then I point out that there is a greater disparity between the income of the average American and the average income in the rest of the world. When I ask if we should start redistributing income from our middle class to the rest of world's poor, they normally start mumbling about my missing the point. If I find a true beliver who agrees we should do this, I slowly back out of the room.
Feb '11
Re: What Makes a Tax Fair?
You're right, just is the better word. But liberals co-opt that one as well, when they talk about the need for "economic justice" in the tax system, where the rich give back for what society has bestowed upon them. Margaret explains why this is nonsense.
I suppose your $20K is a better version of Eccleston's free day. It's saying "This much income is all yours, but you'll have to contribute anything above this, at the same rate as everyone else." If that rate is low enough, we won't need a transitional marginal rate to help the working poor.
Jun '10
Re: What Makes a Tax Fair?
Jaydee_007: ...
My guess would be a Flat Tax between 10 and 20 percent on all income over $20 K would be Fair and far closer to Just than what we currently have. · Mar 27 at 10:36am
Sounds fair to me.
Jul '10
Re: What Makes a Tax Fair?
I would like to argue that there are other advantages to what ShellGamer calls "Eccleston's Free Day". (I think it has a nice ring to it.) It has two other great advantages. First it shows the average worker what their paycheck looks like with and without income and payroll taxes. Second it is more tangible than a cut to marginal tax rates. Because of withholding a cut to marginal rates is almost invisible spread throughout a year of paychecks.
The best part is once the average persons sees just how much is taken out of taxes. Then we can begin the debate whether government services are actually worth it. It would expose the true trade-offs involved with government spending. Then we can have a debate about whether people want more money and less government services.
Conservatives can then make this bargain with voters, how about less government services for 10 or 15 tax free hours in a week. It will have a political ratchet effect that that makes the voters come face to face with the trade-offs involved in government spending. I think the end result would eventually be less government and lower taxes.
May '10
Re: What Makes a Tax Fair?
Jaydee_007: Personally, I could care less if a tax is "fair."
What I want to see is a tax that is Just!
I think this is the same thing.
Jul '10
Re: What Makes a Tax Fair?
ShellGamer
It's nice to think that we could have a day of tax freedom. But I think they'd just raise the taxes on the other four days by 25%. · Mar 27 at 10:17am
They almost certainly will try, but that is also a winning argument for conservatives. If 20% of an individuals income is off limits the debate will revolve around the tax rate on the 80% of an individuals income.
Also how long do you think it will be before American's view one tax free day a week as a right?
Feb '11
Re: What Makes a Tax Fair?
Quick, file for a trademark!
Am I correct that your bargain includes maintianing the same rate for tax encumbered hours? Otherwise, this would become an exercise in balloon squeezing.
Transparency certainly helps voters monitor how fair their taxes are. But this presupposes they know what a fair tax is. So far, it sounds like the key element is a flat rate.
Jul '10
Re: What Makes a Tax Fair?
ShellGamer
I am not presupposing that there is a perfectly fair rate out their somewhere. I am not even imagining that if there is a perfectly fair rate that we could reach it in our political process. I am arguing that conservatives need to shift the debate in our favor.
The current debate is Government spends less your favorite program gets less. I am proposing a debate that asks would you support your favorite government program having less if your paycheck has more.
To answer your other question there would be almost certainly be balloon squeezing but that would also be an advantage to conservatives. It would be visible on every Americans paycheck how much the untaxed day puts in their pocket versus the taxed days. Paradoxically raising taxes on the remaining 80% of income makes the tax free day even more valuable than it was before.
Dec '10
Re: What Makes a Tax Fair?
There won't be a truly fair tax without every income earner having skin in the game. Everyone who makes an income should have the responsibility to pay taxes, and the right to know that they're an important part of government's employer.
Allowing those who earn less to ride on the efforts of others is not only unfair to those who do pay taxes, but it's unfair to those who don't. How does self-respect survive getting that free ride?
The correct way for society to help a low income citizen is to provide the environment to build an economy in which it's possible for that person to make more money. Not taxing the temporary low income worker helps create a permanent class of low income workers. That should not be the function of government.
So to be fair, everyone has to pay. At no point should one taxpayer be required to pay at a higher rate than others simply because he or she makes more money.
Jun '10
Re: What Makes a Tax Fair?
Below is one of my posts from the other thread I referred to earlier. Labeit had responded to my claim that income tax is slavery by asserting that any taxation is involuntary servitude...
Actually a national sales tax is not involuntary servitude. The individual decides how much tax he pays by adjusting his consumption levels. It would put the cost of government activity on display at every iteration of commercial activity. Thus it would motivate most citizens to watch politicians and public spending more carefully. It would not punish productivity so it would encourage a good work ethic and innovation – I keep all of what I earn working those Saturdays. It would encourage savings and investment - both drivers of innovation and growth. It would discourage conspicuous or wasteful consumption. And trillions of dollars currently offshore being hidden from confiscatory taxes would be repatriated. The “regressiveness” of a sales tax is addressed in the Fair Tax proposal by a “pre-bate”. Check it out
Feb '11
Re: What Makes a Tax Fair?
I'd rather buy your Green Book (for a day) than this argument. My opinion is that taxes should be involuntary for at least two reasons.
1. Truly voluntary payments would allow citizens to consume government services without paying for them, which is high on my list of unfair tax systems.
2. If you could identify a government service that citizens are willing to pay for voluntarily, then the government probably should not be providing the service. Let a charity, business or other private organization do it--they'll be more effective.
I regard this as a sales gimmick--the only reason a sales tax works is because people cannot avoid buying things, so the tax is still involuntary. You may as well call an income tax voluntary, because you don't have to work.
FairTax would let someone who lived off the grid, grew his own food and bought everything used to opt out of paying taxes. See Jerry's remark about skin in the game. I'm with him.
Jul '10
Re: What Makes a Tax Fair?
I would love a consumption tax but it is politically inconceivable that such a reform would make it through congress. Politicians will never give up their power to influence behavior with the carrots and sticks of the tax code. Its not just a Democratic vice, Republicans are just as guilty. That is why flat, fair or national sales taxes have never made any political headway even when Republicans controlled the White House and the Congress.
Jul '10
Re: What Makes a Tax Fair?
Proposed federal budget / number of adults
Dec '10
Re: What Makes a Tax Fair?
If the budget were linked to a percent of GDP and surplus revenue were credited to tax payers and federal and state debt was serviced aggressively, I am for a flat tax. I think a national sales tax would harm a business's sales at least initially. I also agree all should pay taxes regardless of income and voting rights should be for all tax payers.
Pie in the sky, I know!