47% of the vote so far to ‘tax the rich’ – is it fair?

One of the talking points in budget discussions is that any problems can be solved by eliminating the “Bush tax cuts” and implementing other means to increase the tax burden on the rich. This is a simplistic view that does not stand even a basic scrutiny but there are reasons to suspect it has weight.

Brad Schaeffer describes Tax Day And The Future Tyranny Of The Non-Taxed. He notes that 47% of US households will pay no income tax for 2010. This is up from 40% five years ago. At this trend, more than half the voters’ vested interest in regards to federal income taxes will be in what they get, not what they pay. That is one definition of a voting block with a significant common interest.

Statistics vary slightly but it can be argued that the top five percent of US households pay 60% of federal income tax. Ten percent account for over 75%. Another two-fifths make up the rest. And half are exempt. And yet…twenty percent of US households get 75% of their income from the federal government. Another one-fifth receives 40% of their financial support from Uncle Sam. Think about what this means in terms of fiscal responsibility down the road. How receptive to cutting taxes which they do not pay, or cutting government spending, from which they benefit, is a majority voting block going to be in the future? Indeed, what does this say about our prospects for economic growth or curbing the size and scope of an ever growing government colossus in the face of a crushing $20 trillion deficit looming on the horizon?

Very soon we may not be merely de-incentivizing economic activity but actively waging war on it.

The issues are about what is a fair share for the ‘rich’ to pay in support of government. The numbers regarding wealth represent a skewed distribution because there is always room to be more wealthy but there is a limit to how poor one can be. With economic growth, that gets into the dialog about the growing gap between the poor and the rich as if one should cap wealth to be ‘fair’ with the inherent limitations on poverty. The tax situation, though, is analogous to a basic marketing law matching income to demand and product price.

The idea often heard as a means to increase government income is to simply raise taxes. The problem is that raising taxes is like a business raising the price of its goods. Up to a point, income increases but after that point the price discourages buyers and the total income decreases. With taxes, too, government income will increase up to a certain level but after that, economic activity is depressed and the overall tax revenue decreases as there is less activity to tax.

Businesses don’t usually consider fairness and such philosophical ideas as major factors in setting prices. They can let the market and competition handle most of that. Governments are an entirely different matter. They exist not to maximize revenue but rather to maximize social goals like defense and justice. That makes issues of fairness much more important. If more than half the vote does not contribute to the federal income tax, that half has a choice to confront: Is it fair to depend upon someone else for government?

Comments are closed.