A Closer Look at Tax "Fairness"
- Austin Pryor Sound Mind Investing
- 2004 27 Oct
One of the central themes of this election season has been the debate over President Bush's "tax cuts for the rich." His opponents assail the cuts on the "wealthiest 2%" and promise to roll these cuts back. Setting aside the issue of whether these cuts were good for the economic health of our country, how should we view the basic fairness of this proposal to eliminate the tax cuts for wealthy earners?
Opponents of the across-the-board tax cut charge that it was unfair because it provided more dollar savings for high-income families. How could it do otherwise? The top 25% pay more than 80% of income taxes, so naturally they will get more relief. The notion that a refund of the surplus should be given back to those who paid it in the first place is scandalous to those who fan the flames of class warfare in Washington politics.
Such objections beg the question of whether our present system of tax rates is "fair" in the first place. Liberals assert that basing our tax system on one's ability to pay is the essence of fairness. The legitimacy of this assumption, which was borrowed from Karl Marx, is rarely questioned -- but it should be. To stimulate your thinking, here are five beginning points for arguing that "ability to pay" is an immoral basis for taxation.
1. Consider the perspective of the Founding Fathers. James Madison, the father of our Constitution, predicted in The Federalist Papers that, given the freedom to do so, the majority in a country would inevitably overtax the minority. That's why the Constitution required that taxes must always be applied uniformly. Only two kinds of taxes were allowed. Taxes on transactions, like sales taxes, were permitted as long as they were uniform throughout the nation. Direct taxes on the people were also allowed, but only if each citizen paid the same fixed amount, regardless of his income or wealth. Taxing people unequally was considered, if you'll pardon the expression, "unfair."
2. Consider the moral imperative of equality under the law. Justin Morrill, one of the founders of the Republican Party, spoke forcefully against unequal tax rates when they were proposed for funding the Civil War: "The very theory of our institutions is entire equality....The man of modest means is just as good as the man with more means, but our theory of government does not admit he is better [and we should not] present a law which shall make such a distinction. It is seizing the property of men for the crime of having too much."
3. Consider the ethic of price uniformity in the marketplace. What would it be like if the government mandated that all consumer purchases were to be priced based on your family's ability to pay? Some would be charged $800 for a business suit, others $250 for the same suit, and still others would get theirs for free. Would you vote for such a system?
4. Consider the tyrannical result of taking progressive rates to their logical conclusion. If "the power to tax involves the power to destroy," as Chief Justice John Marshall declared, then few schemes can be more oppressive than a system of progressive taxation. In 1916, the highest tax rate was 7%; within thirty years, it had climbed to over 90%. Indeed, once tax rate progressivity is accepted in principle, there's no logical reason why the government shouldn't feel free to simply take all of one's income above a certain level.
5. Consider the implications of biblical parallels. Joel Belz, CEO of World magazine, once observed that "God never established one tithe for the wealthy and another for the poor and common folk. The rate was the same, and we can assume that God considers that as just."
For taxable income above the personal exemption, each should pay his true "fair share" of the costs of running the government. If one taxpayer earns ten times as much as his neighbor, he should pay ten times as much in taxes. Not twenty times as much-as he does with multiple tax rates. Not five times as much-as he might with special welfare provisions. Ten times as much income, ten times as much in taxes.
The 16th Amendment may have made our current system of progressive taxation legal, but it has not made it fair. Those who warned against its consequences were prophetic. Over one hundred years ago, Justice Stephen J. Field of the U.S. Supreme Court saw the dangers clearly:
"The present assault upon capital is but the beginning. It will be but the stepping stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich; a war constantly growing in intensity and bitterness."
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