Last updated on 2010.12.29
Dr. Blanchard tasks me as usual. He presents the following chart as evidence that the wealthy pay "way more" than their fair share of federal income taxes:
On its own, the graphic is compelling. The top 1% collect 18% of the national wealth; shouldn't they only pay 18% of the national income tax? The top 0.1% collect 8% of the wealth; shouldn't they pay 8% of the taxes?
If we look at all federal taxes, we find more support for Dr. Blanchard's thesis: the richest 1% pay an effective federal tax rate of 29.5%, while the bottom 20% pay an effective tax rate of 4%:
Alas, Dr. Blanchard's sense of "fair share" appears to be misaligned. A progressive tax system recognizes that charging everyone the same tax rate isn't fair. Taking 10% in taxes can put a family living on $30,000 a year in a serious bind. Taking 10% from a family living on $300,000 or $3,000,000 has significantly less impact on the rich family's liberty. The poor kid whose parents lost 10% of their income perhaps doesn't go to college; the rich kid whose parents lose 10% of their income still goes to college; he just doesn't go in a new Mustang. A progressive tax system recognizes this difference and establishes your tax burden with an eye toward what you are able to bear.
Dr. Blanchard frets that taxing the rich so much "conceals the cost of government from most of the voters." I agree that all citizens should have some skin in the game. But the purpose of the tax code is primarily practical, not pedagogical: we collect taxes to pay our soldiers, cops, and teachers, not to teach people a fiscal lesson. We can pay the bills better by going to the people who have the money and who can afford to do without it. We can much more effectively teach citizens the cost (and benefits!) of government in Dr. Blanchard's classroom and other fine educational venues.
Then again, students hearing this next argument from Dr. Blanchard might ask for a tuition refund:
There are all kinds of things wrong with this. One is that it gives the rich an unfair advantage politically. The 5% who pay 60% of the bill are going to figure out how to leverage that financial weight. They didn't get rich by being stupid. Just ask a nephew in a family in which Grandma controls the fortune [Ken Blanchard, "The Rich Pay Way More Than Their Share," South Dakota Politics, 2010.12.29].
Ah, now I see why Warren Buffett asked Uncle Sam to raise his taxes: it was just a clever trick to gain more influence in Washington.
By Dr. Blanchard's reasoning, taxing people more provides them an avenue to greater political influence. Time for a thought experiment:
Suppose you are making ten million dollars a year and were hell-bent on accumulating political influence. Your accountant tells you that if you just pay the normal tax rate, you'll owe Uncle Sam three million dollars. But if your accountant sharpens her pencil and works her loophole magic, she can bring your tax bill down to one million dollars. Which of the following do you say to your accountant:
- "Oh no, pay the three million! I want to have more political influence!"
or - "Thanks for saving me two million dollars. Here's your 5% commission. Now let's call John Thune about next week's fundraiser..."?
Wealth is power. You have that power when the money's in your pocket, not Uncle Sam's. Anyone who tells you seven million in your pocket gives you more power than nine million is either a Zen Buddhist (there is no money) or a shyster.
Dr. Blanchard's argument that taxes empower taxpayers is (let me be charitable) unconvincing. But that fallacy distracts from the greater flaw in his thesis, the assertion that the rich are paying more than their fair share of federal taxes. Yes, the rich do carry an enormous amount of the tax burden, even larger percentage-wise than the increasing share of the national wealth they have seized over the last three decades. But a 29.5% effective tax rate wreaks infringes much less on the liberty of the wealthy than it would on the lower 20% or even 50% of Americans. In that regard, collecting more—much more—from the rich in taxes is perfectly fair.
Regardless of what you think about the tax system, we can all agree that figuring out how much in taxes you must pay is way too complicated.
With sales tax, the more you spend, the more tax you pay. You pay as you go throughout the year. It's easy to pay and simple, but it's regressive.
Our wonderful federal tax code is a nightmare of rules and exceptions to rules. A full time tax accountant is hard pressed to keep up with the constant changes. We end up wasting valuable time and resources filling out forms and crunching numbers. We make decisions based on tax strategies and not if it's a good idea.
Overhaul the entire system. Make it easy. Make it simple. Allow everyone to contribute their fair share.
Another way to look at this is to note how much of the nation's wealth the top one percent controls:
Table 1: Distribution of net worth and financial wealth in the United States, 1983-2007
Total Net Worth
Financial Wealth
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
Remarkable! Those numbers seem to show there hasn't been much change since 1983. Am I reading that right? But that long-standing concentration of power and wealth at the top certainly calls into question Dr. Blanchard's standard of "fair share."
Do the tax statistics of Blanchard include the regressive "social security" tax which does not tax income above about $100,000.
The federal tax and income fails to show the total tax picture since it fails to include regressive state and local taxes which bleed the unrich from dollar zero and on.
Why no, Douglas, they don't. Anyone have a link to those numbers?
Seize?! To seize wealth indicates forcing it out of the hands of other people. We have something (or had anyway) that comes as a natural right to own property. As economically powerful as anyone becomes in this country they will never be able to seize another's property unless it is with the help of the one entity that has been entrusted with that power: the government. The reality that the loss of any amount of money hurts the poor more than the same amount hurts others is not the concern of government, it is the concert of society. It is only by warping the purpose of government towards social engineering that we end up feeling guilt for what the government does. We are morally bound to help the poor and weak, not the government.
The solution to paying the bills should be to manage the bills, not highway robbery for the common good.
Your disparagement of the lessons of taxes appalls me, but does not surprise me. It isn't a fiscal lesson after all, it is a civic duty. For this republic to succeed it requires an informed and moral electorate. Allowing 90% of a population to continue in ignorance of their governments corrupt abuse of power because we can pay for it all on the heads of the wealthy is truly a road to serfdom. Thomas Jefferson was in error when he advocated for what equated to a progressive tax. Dividing society's civic obligation based on socioeconomic strata undercuts the ideas of equality and duty.
David, the wealth gap does not harm the poor. Pointing at such statistics is just class warfare with no policy meaning.
Ezra Klein posted a very helpful thought experiment here on this subject. He also said that "tax burden" is a good analogy. To a strong person, 50 pounds may be less cumbersome than 20 pounds would be to a weak person.
http://www.prospect.org/csnc/blogs/ezraklein_archive?month=04&year=2009&base_name=day_of_1000_tax_graphs
Roger, when will you stop feigning surprise at the idea that we create the Leviathan, the government, to enforce (oh look! that word comes from force!) the social contract? Government is necessary to the practical enjoyment of natural rights. And practically speaking, when (as David points out above) the top 20% of earners hold 90% of the wealth, you can expect that top 20% to shoulder more of the burden of paying for the government that protects their liberty to amass wealth. If you don't like it, go live on a desert island and roast coconuts over an open fire.
I do not feign surprise at the idea, I am truthfully surprised and horrified that people believe in that idea. The enforcement that the government is entitled to is the protection of natural rights, not an ill-defined social contract for the betterment of society. To place the burden of improving society on government is to abdicate that responsibility yourself.
Also please note that I said I have no problem with the existence of a wealth gap. By implication I was also stating that the rich will shoulder more of the burden than the rest in absolute dollar amounts. My problem comes because the burden is not fairly distributed and we are supposed to be a nation that values equality. An individual in the top 5% should bear no greater burden than somebody at the bottom. The impact of that burden being greater for a poor man should be irrelevant in the eyes of the law, even as it should be of great importance in the eyes of society.