Why the rich should pay more taxes

This piece, like my taxes, is just a bit late. For non-American readers, I should explain that income taxes are due on April 15. Non-American readers may also be utterly astonished at the arguments made below. Could Americans really be so lacking in common sense? Believe me, they could.

--Mark Rosenfelder

For more than a century it's been generally recognized that the best taxes (admittedly this is an expression reminiscent of "the most pleasant death" or "the funniest Family Circus cartoon") are progressive-- that is, proportionate to income.

Lately, however, it's become fashionable to question this. Various Republican leaders have trotted out the idea of a flat tax, meaning a fixed percentage of income tax levied on everyone. And in their hearts they may be anxious to emulate Maggie Thatcher's poll tax-- a single amount that everyone must pay.

Isn't that more fair? Shouldn't everyone pay the same amount?

In a word-- no. It's not more fair; it's appallingly unfair. Why? The rich should pay more taxes, because the rich get more from the government.

Consider defense, for example, which makes up 20% of the budget. Defending the country benefits everyone; but it benefits the rich more, because they have more to defend. It's the same principle as insurance: if you have a bigger house or a fancier car, you pay more to insure it.

Social security payments, which make up another 20% of the budget, are dependent on income-- if you've put more into the system, you get higher payments when you retire.

Investments in the nation's infrastructure-- transportation, education, research & development, energy, police subsidies, the courts, etc.-- again are more useful the more you have. The interstates and airports benefit interstate commerce and people who can travel, not ghetto dwellers. Energy is used disproportionately by the rich and by industry.

As for public education, the better public schools are the ones attended by the moderately well off. The very well off ship their offspring off to private schools; but it is their companies that benefit from a well-educated public. (If you don't think that's a benefit, go start up an engineering firm, or even a factory, in El Salvador. Or Watts.)

The FDIC and the S&L bailout obviously most benefit investors and large depositors. A neat example: a smooth operator bought a failing S&L for $350 million, then received $2 billion from the government to help resurrect it.

Beyond all this, the federal budget is top-heavy with corporate welfare. Counting tax breaks and expenditures, corporations and the rich snuffle up over $400 billion a year-- compare that to the $1400 budget, or the $116 billion spent on programs for the poor.

Where's all that money go? There's direct subsidies to agribusiness ($18 billion a year), to export companies, to maritime shippers, and to various industries-- airlines, nuclear power companies, timber companies, mining companies, automakers, drug companies. There's billions of dollars in military waste and fraud. And there's untold billions in tax credits, deductions, and loopholes. Accelerated depreciation alone, for instance, is estimated to cost the Treasury $37 billion a year-- billions more than the mortgage interest deduction. (Which itself benefits the people with the biggest mortgages. But we should encourage home ownership, shouldn't we? Well, Canada has no interest deduction, but has about the same rate of home ownership.)

For more, see Mark Zepezauer and Arthur Naiman's informative little book, Take the Rich Off Welfare.
How about social spending? Well, putting aside the merely religious consideration that the richest nation on the planet can well afford to lob a few farthings at the hungry, I'd argue that it's social spending-- the New Deal-- that's kept this country capitalistic. Tempting as it is for the rich to take all the wealth of a country, it's really not wise to leave the poor with no stake in the system, and every reason to agitate for imposing a new system of their own. Think of social spending as insurance against violent revolution-- and again, like any insurance, it's of most benefit to those with the biggest boodle. (See also my page on whether welfare does any good).

Who gets to sit on the tax?

Come election season, Steve Forbes, among other millionaires, will be pushing plans for a flat tax. These proposals need to be absorbed with a carload of salt.

A plan where everyone's taxes are lowered is of course simply a tax cut. Here, once again, the question to ask as a voter and citizen is, what government services do you want to cut? Somehow I don't think Steve is proposing to slash corporate welfare or defense. It's more likely a way to attempt to cut social spending through the back door. People like to hear about tax cuts; they don't like to hear about service cuts, even though they're financially equivalent.

A revenue-neutral plan won't change total receipts any-- it'll just redistribute it. Here you have to ask, who gets shafted?

You can't exactly make the poor pay more taxes-- they don't have the money. That leaves only one way to flatten the tax rates-- that is, reduce the taxes the rich pay: soak the middle class. If tax rates go down on the rich, and we're not cutting total taxes, the middle classes have to pay more.

So Steve and the others want the government, already pretty much a subsidiary of the large corporations, to be subsidized even more by the rest of us. About all I can say is, if the American people are stupid enough to swallow this, they deserve to pay for it. (Fortunately, as we saw with Monicagate, the American people are not as stupid as their leaders.)

This is pretty shameless, but it's much of a piece with Republican practice in general. For years some nosy folks (such as Sen. Moynihan) have been investigating what states pay the most to the federal government, and which states get the most benefits back. What a surprise: the biggest winners are the western and southern states that vote Republican; the biggest losers are the northeastern states that vote Democratic. Those who whine the most about taxes are those who suck the most from the public trough.

They won't be happy, I suppose, until they can reconstitute a truly medieval system, in which the nobles pay no taxes at all.

The marriage tax

While we're at it, what about the marriage penalty? Why in heavens are we penalizing marriage?

We aren't. This is a good example of politicians' weasel-talk. There's no marriage penalty-- there's a double-income penalty.

For instance, suppose you make $50,000 of taxable income (after deductions and exemptions) and your spouse doesn't work. Together you pay $8500 in taxes. A single person with the same income pays $10,700. You're enjoying a $2200 marriage bonus. (Even more, if you've taken the standard deduction.)

The penalty comes for double-income marriages. E.g. you make $50,000, and your spouse makes $40,000. You pay $19,700 in taxes; if you were both single you'd pay a total of $18,600-- about $1100 less.

Is it fair to tax double-income households more? Well, why not? If you have a double income, you can certainly afford to pay more than those of us who have just one.

And again, reducing this "penalty" for double-income households means increasing taxes on single-income households.

Exercises for the Republican reader:

  1. Write a rebuttal justifying the corporate subsidy of your choice, respecting the conservative principle that the tax system cannot be used for social engineering.
  2. Write a homily, suitable for use in Sunday school, explaining why Jesus should have condemned the sheep who demeaned the poor by feeding and clothing them, and blessed the rich man for living in splendor while Lazarus suffered.
  3. Take your favorite flat tax proposal and your last 1040, and have your acountant calculate how much money it will save you. Find the names of the five or six middle-class people who will have to make up that shortfall, and write them a nice thank-you note.
  4. Compare the GNP with the rate of taxation over the last fifty years-- e.g. the boom years of the '50s with their 90% marginal tax rate-- and practice explaining that high tax rates discourage investment until you can do it with a straight face.

[ Home ]