Tuesday, October 5, 2010
What Would Be Fair?
I was struck the other day by an editorial cartoon by Tom Toles in the Washington Post. He won a Pulitzer Prize twenty years ago, but this cartoon didn't make me want to give him any prizes.
The other day I saw a Tom Toles cartoon in the Washington Post online. It showed two creatures in a hot tub. Both were naked from the waist up and holding glasses of wine, as if they were about to toast.
The creature to the left was a spherically challenged guy smoking a fat cigar. He was smiling and telling the other creature, "I can count on you! You're the kind of guy I want to be in a foxhole with!"
The other creature was an elephant, and he had a stogy of his own. He replied, "You have the kind of foxhole I want to be in!"
The fat guy on the left was labeled "richest 1%." The elephant didn't need to be labeled; we all know he was supposed to be the Republican Party. In the hand he was not using to hold his wine glass, he held some papers labeled, "Tax Plan."
Obviously, we're to believe that the Republican Party is all chummy with the richest of the rich. That's why you see George Soros at all those Republican fund-raisers, right? And why Warren Buffett endorsed John McCain in 2008, instead of Barack Obama?
Wrong. George Soros pumps zillions of dollars into Democratic causes and candidates, especially the left-wing ones. And Buffett endorsed Obama in 2008. So forget the super-rich for a moment, and simply remember that the dysfunctional minions of Capitol Hill have been debating letting the Bush tax cuts expire, or not, or just letting them expire for the richest. That's the proximate trigger for Tom Toles' tired "tax cuts for the rich" trope -- if you'll forgive my personal, alliterative "T" party.
Envy or Thank?
We of the bottom 99 percent are supposed to resent the top one percent and anyone we catch in the hot tub with them. This is Class Envy 101. But when I first saw the cartoon -- and for the next twenty times or so, however many we're up to now -- I found myself wanting to defend the top one percent.
Please note: I am not in the top one percent. I'm not in the top ten, twenty, or thirty percent, either. I only know that I'm in the top fifty or sixty percent, because I actually pay income tax, which the lower half, give or take, doesn't pay at all. So I'm not defending myself here.
This was my thought: We're just not being fair to the top one percent. They're paying 40 percent of the taxes (according to the Heritage Foundation). In other words, a lot of the money the government gives to the bottom 50 percent comes from the top one percent. But, instead of gratitude, they get drawn in cartoons as fat cats in hot tubs, and liberals try to fund massive new programs by raising "taxes on the rich" even further.
Let's use our imaginations a little and start with a blank slate, where tax policy is concerned. We have a government to fund, and we get to decide how. For some reason, we settle on an income tax. To make the numbers easy, let's say it's ten percent. Since we're thinking happy thoughts here, let's say I'll earn $100,000 this year. Let's also assume that this income tax applies to all of my income, from the very first dollar to the very last -- though I wouldn't be terribly upset if the first $1000 or $2000 was exempt, so my occasional babysitter doesn't have to file at age thirteen.
Do the math. My income tax this year will be $10,000. Let's stipulate that this is fair, even if I don't know exactly what fair means. It won't bankrupt me, and it certainly beats having to pay a toll every hundred yards on every street. It also beats my having to buy and operate my own main battle tank and Apache helicopter to protect myself and my family from nasty people who think the only good American is a dead or enslaved American.
So if my paying $10,000 dollars on $100,000 of income is fair -- remember, we stipulated to that -- how much tax would be fair for my neighbor to pay, if she makes $100 million dollars per year? My first inclination would be say that she should pay a lot more tax than I do, since she makes a lot more money. Would it be fair for her to pay one thousand times more tax than I do? That seems like a lot, but it might be fair, since she has one thousand times the income.
Someone will argue that it's not fair for my rich neighbor to pay that much tax; she doesn't get 1000 times the value I get in government services. Or does she? How would we measure that? Can we measure it at all, if money is not the only thing of value in a life?
Someone else will argue that it's not fair for me to pay the same percentage she does, because she has so much more than she needs to live on, in comparison to me -- so much more left after a reasonable mortgage, medical insurance, the gas bill, a frugal monthly grocery budget, and the third child's braces. Maybe there's a point there, but who decides where to draw the line? Who decides what is fair? Who decides how many dollars a family really needs, beyond which any dollar is surplus? (If we find someone willing to decide that for everyone, the next logical step may be worthy of our notice: deciding that everything beyond that arbitrary threshold of necessity is unjust and should -- or must! -- be seized and redistributed.)
These are seductive arguments. The first is reflected, more or less, in the fact that only a certain amount of income is subject to Social Security tax (FICA). The second is reflected in much higher tax rates for people with higher incomes.
Freedom and Power
The problem with both of these departures from a flat percentage is that they require us to empower someone in the government to decide how much income is necessary, how much is fair, and, as a result, how much to seize from any given taxpayer, under penalty of law, to fund programs for the common benefit and to redistribute to the economically less productive. Right now we have a president who is eager to make these decisions.
I haven't even dealt here with government's tendency to tax the things it wants to discourage at a higher rate, and to reward the things it wants to encourage with deductions or credits. Add that to the institutional arrogance which thinks it knows what's fair, blend them thoroughly until there's a nice, insane froth on top, and you get . . . the US tax code . . . in which the top one percent pay 40 percent of taxes, the top 10 percent pay 70 percent, and the bottom fifty percent pay three percent of taxes -- and most of those pay nothing at all.
If we think about all this for a few more minutes, we realize that the amount of power we cede to government to tax us to produce revenues to operate the government is far smaller than the amount of power we cede to government to redistribute income in the name of fairness or, if you please, social justice. Now think about it for just another moment, and you'll realize that we could as easily use the word freedom there instead of power, because when we confer a measure of power upon our government, we surrender our freedom in the same measure.
I showed my bias at the beginning of our thought experiment, when I said that our purpose in taxing was to fund the government. That makes me a conservative. If I were coming at this from the left and wanted to be candid, I'd have confessed that my motive for taxation was to see that everyone had and received as much as he or she deserved (according to my definition) -- and no more.
If we really want limited government, and if our motive for taxation is to produce revenue, not to reengineer society, then a flat tax, applying to every dollar of income, or even with an exemption for the first thousand dollars or so, would be much wiser than what we're doing now. A very large federal bureaucracy could mostly go away, and we could repossess the power -- the freedom -- we granted to allow it to operate and to thrive.
Besides that, since I don't really know what fair means any more, I don't know that a flat tax wouldn't also be much fairer than what we're doing now.
Copyright 2010 by David Rodeback.