Striving to be fair often feels like a futile pursuit. As the mother of two young children, I hear a lot of “That’s not fair!” and it drives me nuts because all that really is being said is “I don’t like it. I don’t agree.” Criticizing something as unfair is rather easy to do, while proving that something is fair is rather difficult because somebody somewhere will figure out how it is not fair for them (“Mommy, she has more sprinkles.” “No, you each got 30.” “But she has more red ones.” Ugh.)
The claim to fairness in taxes especially makes me want to scream. Everyone claims their tax proposal is fair. And, frankly, they all probably are. Let me show you:
- Fair #1: We all pay the same amount or percentage of what we buy. The bill is fixed at a certain dollar figure or a percentage of the cost of a good or service. Examples include sales taxes and taxes on gasoline or cigarettes. The rationale for this kind of tax is that we have a choice about what we buy and whether to buy at all. The amount of tax to which one is subject is under the individual’s control.
- Fair #2: We all pay the same percentage of what we make (income) or have (wealth). This is the Steve Forbes-style, do-your-taxes-on-the-back-of-a-postcard kind of taxation. Regardless of what you make, we all pay the same percentage. The rationale here is that we should all bear the same burden of tax.
- Fair #3: Those who earn the most pay the most. In this version, people pay different percentages of their income or wealth, and the burden you bear increases in proportion to your income or wealth. It assumes that those with the most wealth or making the most income can more easily bear the burden of taxation without it affecting their well-being substantially.
Taken alone, all three versions of the tax are fair. In Fair #1 and Fair #2, the fairness as equal treatment is pretty clear because you are talking about everyone paying the same amounts or percentages. Fair #3 requires a sense of duty or responsibility to contribute more to the common good when you have been blessed with more in order to understand why this is fair.
But so what? If each can be seen as fair, then they can also be seen as unfair:
- Fair #1, this type of fairness usually has regressive redistributive effects (pushes us further apart) and is tied to consumption, not income or wealth. Those with the least spend actually spend virtually all that they have in order to subsist. There is no choice to not consume that doesn’t significantly alter one’s well-being. (This argument doesn’t apply to luxury taxes, and may only dubiously apply to sin taxes.)
- Fair #2 has a flat effect — it doesn’t do anything to redistribute wealth. This version of fairness doesn’t change anything, which I suppose is a version of fairness, but then why bother having taxes at all? (Oh right, that’s probably the point.) In fact, depending on the percentage and to what the tax applies (define “income” and you’ll get the point), it actually could have regressive redistributive effects even though it is theoretically flat.
- Fair #3 has a progressive redistributive effect (brings us closer together) and that just strikes some folks as wrong – “if you earned it, why can’t you keep it?” Critics who don’t agree with the progressive redistributive effects of this kind of tax usually assume that those who earn money deserve it and should maintain control over it. I also tend to hear people say that private philanthropy is the appropriate role for wealthy people to make contributions towards the common good, rather than through taxes and government (but that’s a future blog post).
Pro or con “fair taxes” arguments are morally anemic largely because taxes are a tool. If you need to build a house, are you really going to argue about whether using the wrench or the hammer is fair? No, you are going to see if it is the tool you need to get the job done. Avoiding the conversation about a vision of an economy we really want, and just bickering about the means as if this could substitute for having the real conversation about what we really want, hasn’t worked very well so far. How much longer are we going to keep doing this?
Let’s talk about equity instead of fairness (the definition I like is from PolicyLink’s Equity Blog shown above). If we are serious about wanting a society where all can participate and proper, then policies that minimize inequality should be our highest priority. Even the language of equity has a more robust feel to it, especially compared to “fair.” Of course we want things to be fair, but equity is something for which we can strive. And an economy where all can participate and prosper must exist before we truly can have a nation of equals.
It’s about life, liberty and the pursuit of happiness. A country where all can participate, prosper and reach our full potential has always been an American ideal, and it should be what drives our tax and fiscal policy. At a minimum, we should be adopting tax policies that narrow the range of income inequality and create the foundation for a healthy and vibrant middle class. And the steps to getting from here to there are going to mean that some policies will look unfair when considered in isolation, but when taken in context of the larger goal, many people will embrace them because they understand why they are necessary. So let’s quit bickering over what’s fair and hold up a vision worth working towards.
(See this bonus blog post about how my seven-year old learned why vision is important and why fair processes or means don’t always get you to your vision.)
Definitions of regressive, flat and progressive can be found here.
Check out United for a Fair Economy’s Fairness in Taxation Act (yes, I know I just blasted the use of the word “fair” with taxes, but they didn’t consult me!) Their members of the Responsible Wealth project have a vision for a more equitable society and have this to say about the wealthy paying higher taxes:
“I think very wealthy people like me should pay substantially higher taxes, since we have done exceedingly well in the last few decades. Our taxpayer-funded government contributed to my success.” – Katharine Myers, Responsible Wealth member, in a March 16, 2011 press conference with Rep. Schakowsky et al.
“I strongly support the Fairness in Taxation Act…While I certainly wish to pass on to my children some of the wealth that I have been fortunate to accumulate, I also want my children to live in a country which avoids the political polarization that may develop as the wealth gap increases.” – James E. Mann, Co-owner of New Hampshire Business Development Corp. & Partner in MerchantBanc
“[M]y husband and I are huge beneficiaries of government support. Every step of our careers was made possible with taxpayer dollars. We strongly feel the debt we owe our society… [R]aising our taxes would not affect our standard of living…I heartily support Rep. Jan Schakowsky’s Fairness in Taxation Act.” – Dr. Alice Chenault, Responsible Wealth member
“I support the Fairness in Taxation Act…because rich people can afford to pay higher taxes. About 90 percent of my income comes from investments, which currently are taxed at the lower capital gains or dividend rate of 15 percent. I would pay much higher taxes under this bill. That’s fine with me, because our government helped contribute to my wealth by protecting the patents I used to start a company.” – Steve Kirsch, CEO of Propel Software Corp.