RALEIGH – Debates about government spending – whether they be legislative wrangling in Raleigh or debt-ceiling standoffs in Washington – only seem to be about budgets, taxes, and job counts.
They are really moral debates. That is, they represent differences of opinion about what it is right for political authorities to use physical force to accomplish.
If you believe that government has the moral authority and responsibility only to provide a few basic services that citizens cannot provide for themselves through voluntary means, then you will tend to conclude that current levels of government spending and taxation are too high.
If you believe that government has a broader moral authority and responsibility to redress social and economic grievances, either by redistributing income directly as cash or through government services that redistribute it indirectly, then you will tend to conclude that current levels of government spending and taxation are too low.
Have you noticed that both sides talk about what is “fair”? President Barack Obama did it Monday night in his televised address on the debt debate. So did the Republicans who think his ideas are too radical and Democrats who think they are too timid.
The reason everyone feels comfortable making fairness claims is that definitions of fairness vary wildly.
In my view, fairness means treating like people and like situations in like manner. In fiscal policy, for example, it is grossly unfair that some households and businesses have significantly lower tax burdens than others simply because of political pull. That’s why I detest targeted tax incentives and other devices of fiscal unfairness.
But in the minds of others, including the president and his allies, fairness isn’t about treating people the same. It’s about treating them differently. It is fairness as equity, not fairness as equality. That’s why they seem so fascinated with models of “tax fairness” that I see as obviously and grotesquely unfair.
When it comes to government taxes and spending, no one outside of a few cranks believes that every citizen of the republic should pay the same amount of tax. Instead, the debate is essentially about whether the effective tax rate – the amount of taxes paid divided by some tax base, such as income or consumption – ought to be proportional or progressive.
That is, should taxpayers be compelled to surrender roughly the same percentage of their resources to government – be they rich or poor – or should taxpayers be compelled to surrender a significantly higher percentage of their resources to government as they become more affluent?
As I have previously argued, I think proportionality is the right standard. I think the cost of government ought to be something like an insurance premium – or a income-variable fare, if you will.
If you have twice as much income or stuff as I do, you ought to pay about twice as much in tax as I do. Ditto for the likes of Bill Gates or Warren Buffet, whose “stuff” multiplier is a great deal higher than two.
If, instead, you think progressivity is the right standard, I would ask you this question: How do you know when you get there? If I have two times as much stuff but pay three times as much tax, is that enough? Or do you think I should pay four times as much, or 10 times as much?
Because the progressivity standard arises not from the logic of fairness but from the emotion of envy, the question has no satisfactory answer.
To bring this discussion from the theoretical to the actual, consider the current distribution of taxes in the United States. I’ll use 2010 figures from the Citizens for Tax Justice, a left-wing group, even though I don’t fully agree with its methodology.
If you combine federal, state, and local taxes (and you always should), the least-affluent quintile of Americans pay about 16 percent of their income to government. The next quintile (call them lower-middle income if you like) pay 21 percent. The third quintile (true middle) pay 25 percent. The fourth quintile (upper-middle) pay 29 percent. The final quintile, the most affluent Americans, pay about 31 percent.
That is, the effective tax rate on the top earners is about twice the effective tax rate on the bottom earners (some of whom are no-earners). Keep in mind that the bottom earners are also the most likely to derive a significant share of their real consumption from government programs, and that the top earners stop paying Social Security taxes on a significant share of their income because they aren’t eligible for Social Security benefits on it. If one adjusted for these factors – using a net-transfer standard rather than gross taxes paid – that would further widen the gap between the two effective tax rates.
So if you think the current tax system is unfair to the poor, you and I speak different languages.
Hood is president of the John Locke Foundation.