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What I'm Writing
The "Fair" Tax Problem
April 15th has come and gone, but the arguments and bitterness remain, even well after the last "tea parties" have disappeared... for this year. We've all heard the arguments. The "rich" pay too little in taxes; the rich pay far more than their fair share; the middle class carries the heaviest tax burden; taxes are too heavy for working families... The arguments, points, and counterpoints seem almost endless, and more than a few Americans have asked year after year why Congress can't come up with a taxation system that is simple and fair.

There are essentially three reasons why that seemingly simple task is in fact impossible. First, the U.S. government spends an incredible amount of money. That requires hefty taxation, and raising large amounts of revenue mitigates against fairness. While everyone thinks spending should be lower, there's no majority agreement on what particular programs should be cut. Oh... there's a general agreement that waste should be cut and that perhaps defense spending should be lower, but, as the saying goes, the devil is in the details. One person's definition of waste, as I've discussed earlier, is another's vital program. And, as for defense cuts... There should be fewer military bases, but don't eliminate the ones in my state. Fewer troops in uniform? But we don't want longer tours for those in service, and we don't want the return of a draft. Less fancy weapons? But that increases casualties.


Similar issues arise in other programs. What about Social Security and healthcare? As it is, millions of Americans have trouble making ends meet in their older years... and you want to cut their benefits? Multiply these kinds of questions by the thousands of programs, and there's precious little consensus on the details of any major spending reform.


Second, because so many Americans' income, expense, employment, and life situation differ, a simple system capable of raising adequate revenue will inevitably have very different impacts on different taxpayers, and those differences will be perceived as unfair.


But the biggest reason why a "fair" tax system is impossible is because, as a nation, we cannot agree on what constitutes fairness. It sounds simple, and it's anything but.


Begin with the reason for taxes. They're officially levied to pay for services that individuals cannot provide for themselves, matters such as national defense, court systems, interstate and local highways, food safety and environmental standards -- the list is long, and while many people complain that it is far too long, every one of those functions or rules was legislated into being because the so-called private sector proved unable or unwilling to deal with such issues. In general, at least in theory, each American has an equal claim to those services. Sam doesn't get more national defense or environmental protection than Georgette, or less use of the highways or the courts.


So... one "fairness" argument asks why citizens who earn more than others and create jobs, either through the businesses they build or through their spending on goods and services, should pay higher taxes, either in absolute or percentage terms, than other taxpayers, when both receive the same government services. In fact, in percentage terms, many of those with the lowest incomes receive such services without contributing at all, except to Social Security and Medicare, and sometimes, not even to those programs.


A second fairness argument is based on equating fairness to percentage taxation, i.e., the fairest income tax is one that taxes all incomes at the same percentage. Under such a tax, often proposed at around 20%, a family that earned $45,000 [approximately the U.S. average family income] would pay $9,000, while a family that earned $135,000 would pay $27,000. The problem with this, many claim, is that $9,000 represents a far greater burden on the average family than does $27,000 on the better-off family, and this makes a flat tax unfair. On the other hand, does the better-off family receive three times as many benefits as the poorer family? Is that fair?


A third level of fairness argument is advanced by those advocating a "progressive" income tax systems [which, in various varieties, are what most nations actually have in one form or another, again, at least in theory]. This version of fairness states that those who have and earn more should pay a higher rate, often a far higher rate, than those who have less. There are a number of rationales for this, but the one most advocated is that those who are blessed with being successful have a greater obligation to pay back society with by paying higher taxes. Put slightly more cynically, that tends to equate to "it's your civic obligation, and we need the money, and there aren't enough of you to stop us from doing it." I, at least, find it hard to argue that the wealthiest citizens, at least those who do pay taxes, and almost all of them do these days, thanks to the Alternative Minimum Tax, receive substantially more in government benefits than do other citizens, other than perhaps the benefit of the government not enacting even higher taxes. Do they have a moral obligation to pay higher taxes? On what grounds? Is it fair to insist that they do? Opponents of progressive taxation raise the question of why it's considered fair for the most productive citizens to subsidize the needs of the least productive. Or why people with more children pay less in taxes than those with fewer children, when those with more children require more services?


These certainly aren't all the arguments about "fairness" in taxation, and there well may be better ones than I've mentioned, but, whatever anyone's position on these questions of "fairness" may be, it is quite clear that among Americans, and probably all populations everywhere, individuals have very different definitions of what constitutes fairness. And that, I submit, is one of the basic reasons why there will never be a tax system considered fair by those across all income levels of a society.


And, then, is it fair for a majority, because those who make less are always the majority in any society, to decide what is fair? Yet... would it be any fairer for one minority or another to decide?



Comments:
"...is it fair for a majority, because those who make less are always the majority in any society, to decide what is fair?"

One reason for the lack of a federal income tax at the time of our nation's founding was the concept of "the tyranny of the majority." As you rightly noted, now that we have a federal income tax, the undesirable tyranny exists. It has been far too easy for the majority to say, "Let's put most of the tax burden on the rich." Most people are selfish and would happily transfer their share of the federal tax burden to others.

To me, fairness in taxes should mimic fairness in life. When you go to a store, you get what you pay for. You don't get reduced-price or free goods just because your annual income is less than average. A store doesn't charge a rich person four times as much for a quart of milk. Sales taxes have the same principal: the amount of tax you pay is based solely on the amount you buy. Federal taxes should be similar to shopping: you pay taxes based on your share of federal benefits. Thus, a family of five should pay more tax than a single person with the same income, because the family of five gets more federal benefits. Essentially, this would be a "head" tax rather than an income tax (though tax per head could vary by age).

If we are going to stick with an income tax, then it should be a flat tax with a cap (similar to Social Security). This scheme seems too progressive for me (a person earning $100,000 pays five times as much as someone earning $20,000), but it doesn't punish the rich enough to make it attractive to the majority.

With Obama currying favor by promoting a tax-the-rich scheme, this exercise is academic. I expect to see top tax rates of at least 50% by 2012 with a greater proportion of the population paying no income taxes and a greater number receiving gifts (euphemistically labelled earned income credits). These people will be very pleased (lots of federal benefits, no federal tax: what's not to like?), and will reelect Obama and the Democrat-majority Congress. The class war and the tyranny of the majority will worsen.
 
Your solution would be inadequate to pay for a number of things that I believe are good for the country: education, defense, food supply inspection, independent drug trials*, welfare (called social security and other things) and so on. Because of a large proportion of the country's resources are controlled by a minority, a simple flat tax would mean that many would get almost no benefit at all.

* Yes, I know that drug companies help pay for drug trials, but the government bureaucracy does help provide some level of independence for the trial process, and I do not believe that companies pay for the entirety of that infrastructure.

Interestingly enough, the government uses a variety of techniques to extract money from everyone. The federal income tax garners the most attention. However, fees of one sort or another from the federal, state, and local governments are highly regressive. The overall tax rate is closer to flat than you might think.

I empathize highly with your view, Doctor T. I work very hard for my money and see far too much of it go to lazy drunkards pumping out children who will be a drain on society. Yes, some people really do contribute less than they benefit (sorry to the politically correct, but numbers don't lie).

How can you deal with low-intelligence members of society in a warm and empathetic manner without being unfair to those who do contribute significantly? This is where a significant portion of our unsuccessful population comes from. Disposing of them is inhuman. Treating them as normal is blind. Treating them as special is unfair.
 
Brian, your assumptions are incorrect. First, you assume that many of the population's needs must be met by government. Then you assume that those needs must be met by the federal government. Then you assume that a flat tax couldn't possibly pay for all the needs. We could easily pay for an appropriate level of federal goverment with a 10% income tax.

Somehow, our nation muddled its way through its first 125 or so years with a small federal government and no federal income tax. I don't recall reading about widespread starvation and deprivation, even among those of low intelligence. Of course, a poor family of the past didn't have a medium-sized apartment or a small house, a six-year-old car, two TV sets with cable, and frozen dinners in their freezer. (These are typical conditions for our poor today.)

The reason why our federal government has become immense (and immensely wasteful and inefficient) is because people like you, whenever you see a problem, declaim that "the government must do something about this." Our government, overseen by politicians and staffed by bureaucrats and administrators who thrive on government growth, are happy to "help." Since everyone has at least one pet peeve, there still remain many ways in which our governments can expand. Soon, half the people in the country will be government employees "helping" and spying on the other half. We'll have 1984 in 2014. Obama already has proposed 1. Federal oversight of all food production, 2. A huge expansion of Amtrak by adding "medium-rail" trains, and 3. A plan to control urban and suburban development of every city in the US. This is on top of the increased control of banks and financial institutions, the takeover of GM, and the blackmailing of Chrysler. Should the federal government be doing these things? Is this what our tax should be supporting?
 
I'd love to see our federal government return the power to the states, and in turn, see the larger states turn most of that power over to the counties/cities. I think a large problem, and a source of discontent for many, is that they feel so disconnected from their tax dollars. If, on the other hand, the person in charge of spending my tax money, lived in my city, and my vote actually had an impact on his election bids, I'd feel like I had a lot more control.

Some things need to be controlled by the federal government (as outlined in the Constitution) such as Defense, interstate commerce, and maybe the FDA. . .maybe. A lot of what is currently managed by Washington could be handled more efficiently by a more localized government entity.

Of course, as Mr. Modesitt says, everyone has an opinion of what's "fair."
 
"Thus, a family of five should pay more tax than a single person with the same income, because the family of five gets more federal benefits."

Apparently, you do not have children. Placing a larger burden upon families would be not only counter-productive, but suicidal. Already the more intelligent and educated people have fewer children, so let's raise the tax burden on those individuals to the point where no one wants to have kids. Then, in a couple of decades, there won't be anything remaining that is recognizable as the United States and Mexico can go ahead and take over.

The whole point of the child tax credit is to encourage people to have children. Children are expensive to have and raise and teach, but without them, there's no point to any of this nonsense.

I have two children, therefore, I should pay more in taxes than a single person who makes the same amount of money as I do? How does this make sense? On my income, I support 4 people, including a special needs child that is not receiving any state or federal assistance.

The single person is only supporting him or herself, and not contributing to the future of this country. My children will be the ones taxed to pay for the single person's social security and medicare.

What is unfair are those who are playing the system for maximum benefit and are not contributing to any level of society. But then, where has it ever been said that nature, life, or the universe was fair?

There is no way to create a 'fair' taxation system in this country. There is probably no way to create a 'reasonable' taxation system, either. But I don't think anarchy is a much better solution. Nor have I heard of any human system of government that has achieved this so-called fairness. If you have, well, feel free to move there.
 
A system which makes it unattractive to have children will be a system that withers away
 
Dr. T, I believe you assume incorrectly. "People like you" is a bit simplistic. My post was more to incite thought as to how to deal with the problems rather than to suggest that the government should "take care" of us.

We could certainly do well with a far smaller government. But, citizens must take responsibility, and that is my hope (perhaps not realistic in any short-term time-frame). Responsibility takes generations to firmly ingrain into culture and our body politic is actively encouraging movement away from it. I was addressing the common complaint that fiscal conservatives "don't care" rather than saying that government must take up the mantle of said caregiving.

Welfare was probably one of the ways in which my post offended you, as I know that welfare brings a visceral reaction on both sides of the debate. In my opinion, today's welfare and social security systems are fundamentally wrong in their structure. However, I will not deny the need to help those who cannot help themselves. Unfortunately, many people should help themselves and many should get help from family, friends, and neighbors. When welfare spigots are wide open, there is a disincentive to work or reach out to those who *should* be helping. Government intervention is a way to *make* people take care of each other, but it is simultaneously de-humanizing the act of caring. Caring isn't necessarily "nice" (e.g. drug intervention or kicking someone out who will not work) but it is helpful.

To sum up my correction, the problem is more cultural than legal. Congress cannot solve it with a new budget. Rather, we need societal underpinnings which involve independence and responsibility. Congress surely needs to change, but it is more than that.

I took some time to reply because my first response was more of a reaction that is typical of modern internet "conversations". Hopefully, this is more helpful and civil.
 
To acpaul: I have two children. The argument I was making is that if one believes that a fair tax system should be based on the amount of benefit received, then a family of five would have to pay more tax than a single person because the family gets more benefits. And I do not believe that placing a larger tax burden on a family than on a single person would be suicidal, and I do not believe that child tax credits are necessary. You believe that because you're looking at the current levels of taxation and the current levels of government services. Under a low services libertarian government, the total tax burden for that family of five would be low (and the total tax burden for a single adult would be very low).
 
A point that Mr. Modesitt made in his most recently published book, Imager seems rather appropriate to this discussion, "each man perceives any advantage to himself as fair and deserved and any advantage to another as unfair and undeserved."
 
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