Opinion: What is a fair tax system?

There are more and more calls for “tax fairness” — which usually means taking someone else’s money.

We can probably all agree that a tax system, like most things, should be fair.  The problem is that we cannot always agree on the definition of “fair” or if we do it’s because it is self-serving.  It can mean widely different things to different people. For example, the culture in Connecticut accepts a progressive tax system as “fair” (although a large chunk of the political class thinks it should be “fairer,” dadgummit!) But I would argue that a progressive system is two steps away from being “fair.” I do not base this analysis on Karl Marx or Adam Smith. I base it on common sense.

Alan Calandro

Consider when you go out to lunch with a friend.  What do you do when the bill comes?  You likely split it equally or if someone had an obviously more expensive meal, that person would freely chip in more (usually). That seems fair because it is intuitively fair as in “one for you and one for me.” We all get that. But no one, in at least any meal event I’ve ever been a part of, has proposed dividing the bill up by one’s income.

Basing the bill on income would mean that your friend who earns twice as much would pay twice as much.  So, a $30 meal bill will get divided as $20 for them and $10 for you even if you had the exact same meal. This is a percentage-based system that for taxes results in wealthier people paying far more of the amount of taxes to fund the government.

Most generally accept the free ride like its “fair.” But actually, the system is even “fairer” than that. Under tax systems across the nation, not only does the wealthier person pay more in actual dollars due to the above but they also must pay a higher percentage of their income. So – keeping the lunch analogy going – instead of paying $20 for their meal they pay $25 and you pay $5 (for those people that actually pay taxes that is, since only about 39% of household actually pay income tax – and yes I am aware that there are many other taxes that people pay). Yet almost all of us accept this higher percentage system as being “fair” also.

But try that out the next time you have lunch with friends and see how it goes over. I would wager that it would not feel fair to anyone. Maybe that’s because we know the people and have to look them in the eye. The unidentifiable “rich” are easier to castigate and make pay more. Whenever I hear “the rich” and how everyone agrees to tax them more (not you) due to “fairness,” I wonder who these people are exactly? Yes of course, it’s the hedge fund owners, the Bezos, Gates, and Zuckerburgs of the world, but it is much wider than that. Some of these rich people may actually be normal and likeable. (OK, having listed the names before this, I must admit I am having a tough time with that.)

Strangely, at the same time that I think such a system of taking of other people’s money is fundamentally unfair/wrong, I also think that having too much wealth is immoral. Maybe that is because I am a person easily satisfied. How many Big Macs can one person eat? Maybe it’s my Catholic upbringing (“it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God”). Maybe it’s because it doesn’t feel like I am stealing other people’s stuff like taxing does. I’m not sure, but it certainly seems wrong to have billions when many other people (generally not in the U.S.) have almost nothing.

I am so opposed that I would favor a cap on how much wealth a person can make or possess – which of course flies in the face of my tax fairness point. And not only that, but my wealth cap would be fairly low — as in a couple million dollars, maybe lower — not just the obviously obscene billions of dollars that some people make/possess.

But I understand that the lower the cap, the more the counter economic negative effect it would have on creation of wealth and the economy as a whole. But I certainly do not believe such thinking when it comes to vast wealth in the billions. The evidence for that is that extremely rich people give away their money – obviously because they do not need it. And in addition, their philanthropy is given almost always with their name on it. Turns out you can even “buy” the perception of “goodness” by setting up a foundation or naming a hospital after yourself. Heck, even athletes (and others) who don’t have billions are smart enough to set up foundations in their name to boost their public image resulting not only in a positive image but also a net positive income effect.

By the way, the U.S. did not have a permanent income tax until 1913 with rates on income from 1% – 7% (revenue for the federal government before that time was derived primarily from tariffs – didn’t some guy named Trump try those and was met with almost universal condemnation?).  It took an amendment to the Constitution (the 16th) to allow the imposition of the income tax.  During the 1950s and 1960s the highest income tax rate in the U.S. was about 90% (not too far away from a cap!).  I suppose the upper bracket people back then could console themselves that England imposed a 95% tax rate – hence the Beatle’s “Taxman” song written out of frustration.  And today the rate here is 37% — down from 39.6% after  the 2017 tax reform act.

We are a long way from 90% now, and many want to raise our current rates and spend lots of money, but I still like the cap idea better.  I suppose I shouldn’t worry too much about its effects since it didn’t overwhelmingly worry those who imposed high rates in the 1950s and 1960s.  So, let’s do a cap, I am even open to austere suggestions on where the line should be – but let’s not call it “fair.” More on a better tax system to come.

Alan Calandro is a lifelong Independent and the former Director of the General Assembly’s nonpartisan Office of Fiscal Analysis and a former Chief of Staff for administration and finance at the University of Connecticut.


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