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.
Get ready for a VAT! Coming soon.
Reply to this commentLinkReport Abuse" The vast majority of these taxpayers will get much more out of these programs than they will ever pay in."
Nonsense. The vast majority in the past have gotten much more out than they paid in, but unless something changes drastically, and fairly soon, the vast majority of current taxpayers will see pretty much nothing from these programs.
How we conservatives can sound the alarm about the coming collapse of Medicare and Social Security in one breath, and then lecture the middle class taxpayer on how they are really a parasite, looking to collect far more than what is "fair" in the next, baffles me.
No one's "entitled" to an "entitlement;" taxpayers of whatever income level under the age of 50 see precious little chance of collecting anything from these programs, without a drastic change -- a change that will, incidentally, necessarily require that the vast majority no longer get out much more than they put in.
That's the reality. So "fairness" should at least require an acknowledgement that payroll taxes are, in fact, taxes, and those paying in are guaranteed nothing coming out.
Reply to this commentLinkReport AbuseAs a long-time member of the 55% Club (American workers who pay federal income tax) and in support of President Obama's Share the Responsibility Tour, I am happy to share the responsibility of paying our country's bills with members of the 45% Club (American workers who pay no federal tax).
Reply to this commentLinkReport AbuseFairness has nothing to do with taxes. The rich get taxed more because that's where the money is. Raising taxes on the poor and lowering taxes on the rich is pointless if you are trying to balance the budget.
Reply to this commentLinkReport AbuseJason, thank you for finally admitting that the entire basis of the tax code is nothing more than greed. Yours.
Reply to this commentLinkReport AbuseLiberals have always defined fairness as "someone else pays".
Reply to this commentLinkReport AbuseMarkW, your comment makes no sense. What greed? The entire tax base is *my* greed? How? I'm not sure why you assume I benefit from higher taxes or higher government spending. I'm simply pointing out that taxes exist to pay the government's bills, and therefore the rich are going to get taxed more, because that's the only way to pay the bills.
If you can get government spending down so low that it's possible for the rich and poor to pay equal amounts of taxes, go for it. But that's not the situation we are in now.
Reply to this commentLinkReport AbuseJason: The "Yours" comment was just to serve as a convenient example.
Reply to this commentLinkReport AbuseMarkW, I have to agree with Jason. His original observation amounted to why bank robbers target banks, i.e. that's where the money is. He didn't say it was fair of just.
Knowing that the government is insane, I am trying to position myself to survive without any entitlement payments. I hope to rent out a couple rooms for enough to live on. I also have some modest personal savings that I am trying to increase. I will not be able to pay for significant medical care; but government medical insurance is no guarantee of care anyway. I would be happy to see the Medi* entitlements go away and everyone's taxes decrease. I am probably unique in this perspective, however.
I expect tax increases and probably a VAT. Even if it were just for a transitional decade to get people weaned off entitlements, it would be a bad idea. Once the VAT is imposed, it will keep being raised. The government needs to be reined back to its Constitutional duties, and the expansion of powers using commerce and "common welfare" needs to be reversed. Some controls on unions requiring that their deals be sustainable through being tied to the company's profits would be nice. Discussing funding in actual dollars doesn't work when the dollars do not show up.
We have to spend less, and depend less on government. What use will our entitlements be when they don't actually pay for the things we need, and there's no one left to tax? The last billionaires standing will leave the country. Then what? Somalia?
Reply to this commentLinkReport AbuseIt is often said that life isn't fair. Some people get unexpectedly and expensively sick before their time. Some people are born into money. Some people have a limited intelligence. I believe we can all accept the existence of various baseline injustices. The question is, how do we deal with this inequity?
Reply to this commentLinkReport Abuse"Raising taxes on the poor and lowering taxes on the rich is pointless if you are trying to balance the budget."
I'll agree with this point, but raising taxes on the rich won't balance the budget either. So in regards to the budget, this is a pointless argument.
I absolutely believe that everyone who earns income, either as an employee, employer, or investor, should pay some amount in tax. Why shouldn't someone making $32k pay tax?
Continuing to place a larger tax burden on the wealthy will eventually cause a reduction in that base. The rich will either become less rich, move their income offshore, use more and better shelters, etc.
Reply to this commentLinkReport Abuse"but raising taxes on the rich won't balance the budget either."
That is not a fact.
Reply to this commentLinkReport AbuseIn 2008, the percentage of total income taxes paid by the top 1% of taxpayers was almost twice thier percentage of total income.
By contrast, the percentage of total taxes paid by the bottom half of taxpayers was about one-quarter of their percentage of total income.
And to make it into the top 5% of taxpayers mentioned in the article, you only need have an AGI of a bit over $159,600.
Reply to this commentLinkReport Abusedaniel k: "I believe we can all accept the existence of various baseline injustices. The question is, how do we deal with this inequity?"
Just to clarify, is it your position that inequity equals injustice?
Unless you're from the Obama School of Redistributionists, government does not exist to equalize the outcomes of individuals - if that's where you're headed with your question.
Reply to this commentLinkReport AbuseJason, whaddaya mean, "That is not a fact"? Do you have any clue what tax rates would have to be levied on "the rich" to balance the budget on their backs alone?
Reply to this commentLinkReport Abuse"That is not a fact."
Yes it is.
Reply to this commentLinkReport Abuserimfrel, it's greed because he doesn't want any programs cut, he just wants other people to be charged more in order to pay for them.
Reply to this commentLinkReport AbuseBank robbers targeting banks only works because just one bank has way more money than a bank robber needs. If, instead, a group of bank robbers needed the money from numerous banks, they'd be better served to target a higher number of softer targets.
Based on irs.gov numbers, the top 2% of tax filers earned $2.1trill (2.8mill filers earning at least $253 grand each). The paid $477bill. This means they had at most $1.6trill left over (not counting payroll, state taxes and all other expenses). We could take ALL of that and pretty much run in the black this year. Of course, this just might possibly disincentivize earning that much.
Of course, if we don't want to increase taxes on the lower 98%, we can only start the 100% rate at $250,000, which keeps roughly half of that off the table.
If we simply wanted to bring in revenue, we should just increase the bottom rate and start it at any income greater than zero. We'd get more money from pretty much everybody, and it wouldn't disincentize the high earners. I don't think this is a good idea, of course. I think we should consider cutting spending.
Reply to this commentLinkReport AbuseWe have fundamental thought processes that have to change.
Social Security is a difficult issue because it was never sold as an "entitlement". It was sold as an investment. Generations of us were taught from the time we started working that the money being pulled out was being saved and invested for us and that in old age we would get it back. It was a lie, but it was what I was taught when I entered the workforce at about 15 years old and it was what virtually everyone else I know was taught.
Tax fairness is a difficult issue because everybody thinks they are getting off scott-free when they get all of their income tax deductions back. Or if they are renting, they pay no property tax. Or they get the earned income credit. They do not understand that they pay all this and more in the form of higher prices whenever they purchase anything. It's a suckers game.
Until everyone, rich and poor, realizes there is no free lunch and that everyone is already paying and reality will force us all to pay off the debt (either through actually paying it or through the economic disaster that will result from default) we will get nowhere. When we accept the fact that their is no wiggling out then real problem solving can happen.
Reply to this commentLinkReport AbuseYou want fair? Try this:
There are 100 members of a very exclusive club. The club's operating expenses are $100 per year.
They are allocated ("axxessed" was rejected) among the members according to income, and the distribution breaks down as follows:
1 Member pays $38.00 per year
4 members pay 5.25 per year, each
5 members pay 2.25
15 members pay 1.10
25 members pay .45
50 members pay .05 per year, each
Now that costs are going up, the club president says that it is time for all members to pay "their fair share."
What would be the "fair" way to raise, say, another $10 or $20 per year.
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