Spurred by frequent commenter Michael Reynolds, I thought I’d elevate a discussion of fairness that’s going on in the comments to this post into a post of its own.
Michael takes note of a study that finds overwhelming public support for the Buffett rule, a provision that those earning $1 million or more per year pay no less than 30% of their income in taxes:
According to a new Gallup poll released Friday, a majority of Americans support the proposed Buffett Rule, which would require individuals earning $1 million or more per year to pay at least 30 percent of their income in taxes.
The survey found that 60 percent of adults support enacting such a policy, while 37 percent oppose it.
By significant margins, both independents (63 to 33 percent) and Democrats (74 to 24 percent) supported the measure, a key Obama campaign issue. Republicans opposed it, but by a smaller margin of 54 to 43 percent.
This presumably contradicts previous studies that have found, for example, that people believe that a lottery winner’s paying more than about 15% of his or her winnings in taxes is unfair. Perhaps the way to reconcile these two apparently conflicting opinions is that most people don’t think of themselves as prospective millionaires but can envision themselves as lottery winners.
I agree with Michael’s observations:
Fairness is not irrelevant, it’s basic to our capacity to actually resolve some of our problems. It is vital that the rich be seen to suffer along with everyone else. That’s not class warfare, it’s actually the opposite of class warfare. Class warfare is what we will get if working class people and the poor suffer while the rich get richer.
However, I don’t believe that the Buffett rule will effect the results its proponents suggest that it will. Based on my personal experience of the top .1% of income earners, if the additional tax would result in, say, an additional $40 billion per year, they’d gladly pay in additional $40 billion (or more) to accountants, lawyers, or in various tax shelters to avoid paying the tax. Consequently, I’m indifferent to the proposed change to the tax code. I think it would not be effective, would result in a net loss in economic activity, will do very little to alter our national fiscal position, and is mostly political posturing. But I really don’t care much one way or another about it.
The Buffett rule is based on the principle that a billionaire shouldn’t pay a lower effective tax rate than his secretary. There’s there’s essentially only one way to achieve fairness in federal taxation, fairness defined as equal effective tax rates for everybody: abolish FICA and go to a flat tax. The revised 1040 would be simplicity itself:
- Write down your total income from all sources.
- Multiply that by whatever the tax rate is.
- Send it in.
The problem with that is that it would be unfair because, in violation of the precept not to compare utility functions, $2,000 means more to someone who earned just $10,000 than $200,000 does to someone who earned $1 milllion. It certainly means more in terms of their respective abilities to feed, house, and clothe themselves.
There are ways to tinker with such a formula to ensure that it’s more fair, e.g. you could exempt the first $20,000 in income, but then you’re not arguing for fairness in effective tax rates any more.
Fairness isn’t simple. It’s protean in the extreme.
While I think it’s reasonable to support life, I’m less comfortable with supporting lifestyle. Lifting people from lives of grinding poverty is one thing. I don’t think there’s a moral obligation to enable everybody to live a comfortable life in Maui. If New York or San Francisco want to pay poor people to live there, that’s their business. I don’t think the federal government should tax a plumber in Memphis so that a bum can live comfortably in Manhattan. I don’t think that would be fair.
I don’t think that a flat tax system is likely since I don’t believe that Congress will cheerfully relinquish its power to help friends and punish enemies, to modify other people’s behavior. Certainly my preference would be ending subsidies to the rich than trying to tax the results away after the fact.
What subsidies to the rich? They are incredibly numerous. The home mortgage deduction is a subsidy to the rich. As Medicare and Social Security are currently constructed they are subsidies to the rich.
The bank bailouts that both the Bush and Obama Administrations pursued were subsidies to the rich. Agricultural subsidies as constructed are subsidies to the rich. The list is practically endless.
I don’t think any of those measures are at all likely for much the same reasons that a fair tax system is unlikely: the Congress won’t relinquish the power.
In the end I’m left with questions. What is fair? How can fairness be accomplished?