Tax Day is traditionally an occasion to bemoan the state of U.S. tax policy — and rightly so, as it is a mess. This year the focus is on “fairness,” driven in part by the president’s calls for raising taxes on the so-called rich.
Fairness is, of course, in the eye of the beholder, so one shouldn’t expect the fairness debate to ever really be resolved. Nevertheless, I think it is important that fairness not be narrowly considered from the perspective of annual tax payments.
Stepping back just a little allows one to see that for a majority of Americans, the largest tax they pay each year is the payroll tax — which is dedicated to Social Security and Medicare. The vast majority of these taxpayers will get much more out of these programs than they will ever pay in. Effectively, this group is subsidized by the payroll and income taxes of the remainder of Americans.
More importantly, they get their government for free. Everything the Framers envisioned for the federal government — national security, infrastructure, basic research, etc. — is paid for largely by income taxes. Nearly half of Americans pay no income tax and the top 5 percent pay well over 50 percent of the income taxes.
When a tiny fraction of Americans is paying for all of the government that every American enjoys, why is it fair to make them pay more?
Stepping back even more, one can see that the major injustice in progress is the one being done to future generations: Unless the U.S. changes course, they will inherit broken social-safety-net programs, enormous debt, and a crippled economy. The proposed tax increases do not address this travesty — witness the Obama-administration budget that incorporates his proposed tax hikes and still runs a deficit of $1.2 trillion ten years down the road. Instead, the perpetual campaign for these taxes distracts from the reforms that need to be made to entitlement programs and other spending.
Fairness is important, but focusing the fairness debate on the income taxes of a handful of Americans simply distracts from the greater injustices in federal fiscal policy.
— Douglas Holtz-Eakin is president of the American Action Forum.