Monday, September 19, 2011

"Fair Share"? Who Says? 

So our beloved President Obama has come out with a "new" deficit reduction program that oozes with class-warfare populism, calling for those millionaires and billionaires (although I don't think he used the phrase) to pay their "fair share" of taxes. Now, as a general principle, I don't think the hyper-wealthy, like the President's friend Warren Buffett, really should be paying a lower rate than the typical middle-class family with 2.3 kids, but I also think that raising income tax rates on anyone is not a good idea right now, in the worst economic slump since the Great Depression.

What bugs me about Mr. O's philosophy is this notion of "fair share." What is a "fair share"? Who gets to define it? Are the nearly 50% (I've seen many numbers, all between 45% and 50%) of Americans who pay no federal income tax paying their "fair share". According to the Tax Foundation website, Americans in the top 25% of income class pay 86.3% of all income taxes, while making 67.4% of all income. Are those people paying their "fair share"? Or are they being gouged? What about people who are gaming the system? Are they paying their "fair share"?

On the last point, this weekend I heard an anecdote about a family in New Jersey, The wife doesn't hold a paying job. The husband works, but only half his pay is "on the books" and the rest is paid in cash "under the table". As a result of this arrangement, the family qualifies as "poor" and therefore get all kinds of benefits, such as food stamps and other kinds of "entitlements" and two of their kids get to go to the local community college for free. Of course, they don't pay any federal income tax. To my way of thinking, these people aren't paying their "fair share"--they're not even in that ballpark. What they're doing is free-riding, adding to the burden of everyone else. If I were king the husband and his employer would be headed for jail. I'm sure some qualified out-of work person would be more than happy to take over the employer's business and run it legitimately so that the other employees could keep their jobs.

"Fair share" is a fine-sounding phrase. Everyone agrees that everyone should do their "fair share". It's like motherhood--who's against motherhood? (Well, except for those population bomb crazies.) But like almost everything else in politics, the devil is very much in the details, and what usually happens is that people of influence are able to get themselves loopholes and exemptions and whatnot, and "fair share" inevitably morphs into screwing the average taxpayer.

All that is why I have come around to believing that the country should repeal the Sixteenth Amendment and rely exclusively on consumption taxes for revenues. That tax structure would be much easier to administer and enforce, it would do away with the annual ritual of Form 1040, and would reduce the opportunities for our political class to do favors for their favorite constituents (sometimes called "graft"). If we are to have a consumption tax, repealing Amendment XVI is a must, or we'll wind up with what they have in Europe--income taxes plus a consumption tax (VAT), and we're now seeing how well that's working out in the daily financial headlines.

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