I know that all the excitement on the Herman Cain story currently revolves around the anonymously-alleged sex stuff, but I’m going to ignore that unless and until the evidence of wrongdoing increases. Till then, I’m in the skeptical camp.
I did tune in online Monday morning to a presentation at the American Enterprise Institute at which Cain defended his tax plan. (By agreement, Cain declined to comment on the sex stuff at AEI claiming – fairly absurdly – that he was bound by rules set by AEI to talk only about taxes.)
Two things struck me from my morning of online eavesdropping. First this:
Cain says that one of the attributes of his tax plan is that it is “fair,” and he added: “that’s ‘fair’ as defined by Webster’s dictionary, not as defined in Washington.”
I like that. And I get it. It’s a minor laugh line for government-haters and a minor flip of the bird to President Obama. But it’s also a form of baloney.
Democrats and liberals generally believe that what’s “fair” is a progressive tax code. (“Progressive” is itself kind of a self-serving word choice by the left.) Each side in these debates claims that what it favors represents “progress.” Kinda like “reform.” I personally think the word “reform” has lost all meaning and I propose that it be dropped from the language. I call my idea “word reform,” which means I get to decide which words mean what.
But “progressive,” as applied to taxes, means something like a graduated income tax in which those with higher incomes pay a higher marginal rate. When President Obama (and pretty much all other Dems who have received the same word-usage advice) say that they want to “ask” (ha ha) “millionaires and billionaires” to “pay their fair share,” they are really saying that they want them to pay a higher marginal rate because they can afford it.
But OK, Cain and the righties think that, as applied to taxes, “fair” means “flat” which means that rich people pay the same rate as poor people. Same rate for everyone. What could be more fair?
Well, I guess dumping the income tax entirely and substituting a national sales tax would be more fair, since the authors of that idea have named it “The Fair Tax.” (Not only have the proponents named it “the Fair Tax,” that is how it is referred to in general conversation among tax-obsessives, especially on the right. Now that is a marketing coup.)
In spite of the jocular (mocking?) tone of this post, I did start out to seriously say that the basic concept of “fairness” seems to be different on the left and the right and I don’t mean to assert that one side has a monopoly on the correct meaning. It’s just a little example of how easy it is for the left and the right to talk past each other without any hope of mutual understanding, and especially when they use some of the same words but each side has in mind a different meaning.
What’s baloney?
By the way, as cute as the line is about how Cain and the righties are using the word “fair” the way Webster’s defines it, that’s actually baloney.
My online Webster’s lists this as the first (and, for our purposes, most relevant) meaning of fair:
Free from favoritism or self-interest or bias or deception; conforming with established standards or rules; “a fair referee”; “fair deal”; “on a fair footing”; “a fair fight”; “by fair means or foul.”
I don’t think that a fair-minded or fair-haired or fairly bright member of either sex (including the fair one) could read that definition and conclude that Webster is weighing in on Cain’s side of the meaning-of-fair divide.
By the way, Cain was asked what the role of government was in promoting “fairness” in the distribution of the national wealth and income. He replied: “I believe that the government’s role to create fairness should be zero.”
“pay a higher marginal rate because they can afford it”
This is a broad brush statement that isn’t entirely true. Much of the argument for progressive taxation is people with more income should pay a higher rate because they benefit more from government services. Law and order is worth more to people with the most to lose.
What’s fair when it comes to taxes?
Total revenue sufficient to fund the activities we’ve agreed, through our elected representatives, are necesary or desirable.
Participation by all receiving income, earned or otherwise.
Graduated rates that apportion the burden in a manner that none love but all can (literally) live with. When rates must be increased or can be decreased, the rates move proportionately.
Income and expense neutrality, i.e., identical treatment of all forms of income with no deductions intended to accomplish extrinsic social or economic goals.
Those who equate taxation with infringement on liberty might revisit their history books and the U.S. Constitution, particularly the Bill of Rights. One of our primary complaints with British rule was not taxation, but taxation imposed with no input from the colonies. The liberties guaranteed by the Bill of Rights do not include freedom from taxation, but freedom of conscience, action and self.
Let us examine Eric’s accepted definition of “fair”, in regards to taxation…
“Free from favoritism or self-interest or bias or deception”
A graduated tax burden is built on favoritism.
A graduated tax burden that begins at $0 for incomes of an arbitrarilly set level invites the self-interest of those benifitting from it.
Further, a graduated tax scale depends on the bias of those setting it. Is it not true that the same $20 bill looks different to people of different income levels? Is that not bias?
A flat tax on incomes from all sources is the only tax that meets your accepted definition of fair, Eric.
Anything else is built on class envy.
#1 and #2 are spot on. Fairness isn’t a matter of income and ability (at least not entirely), it’s about benefit, as well.
Plunk a person living in the US in extreme poverty into a communist country and they will experience less of a shock than plunking a wealthy person into the same situation.
One of our greatest national expenses is defense. Our defense system is designed to prevent the theft of resources (including land, people, and money). Those with the greatest access to resources have the most to lose.
Maintaining roads provides a greater benefit to those with cars and businesses requiring transit than it does to those without personal transportation or need to move large amounts of goods.
Federally insured bank balances have little impact on those with little money in the bank, but a much bigger impact on those who can afford to fill their accounts to the max insured totals.
Etc.
Flat taxes systems look good on paper but in reality they never pan out. Flat tax systems end up being unfair in the real world because in the real world you have seniors and disabled people living on fixed incomes. We also have people working full time and getting paid poverty wages. If you cut the wages and revenue for these people by 9% you’re delivering a crippling economic blow to one group while raising the income of the wealthy… not fair in very many books.
The other problem with flat tax assumptions is they fail to account for the actual location of society’s wealth. The top 10% capture almost 50% of all the income. If you ignore that fact the other 90% end up paying more than they should. The myth behind flat taxes is that the wealthy are paying for government they don’t use. While the wealthy may live in subsidized housing, they actually benefit more from government than everyone else. The wealthy for instance are far more reliant on contract enforcement for their income than most people- without a relatively fair and impartial government how enforceable would all those contracts be? Without the trade deals our government negotiates what would trade look like? Think about the land and mineral grants the government hands out. I could go on but I think I’ve made my point. It’s not an accident that the wealthiest and most affluent countries in the world are NOT those with weak and small governments.
I’ve written a basic description of our tax structure and the rationale for it on my blog and explained why the wealthy are not overtaxed in any event. It’s a long series but here it is: http://pudstrand.fatcow.com/blog/?p=8
As I tell the kids, “The Fair is in August.” I’m mostly just trying to toughen them up a bit for the real world.
There is no logical argument for graduated rates on income taxes since the more you make the more you’d pay anyway with a flat rate. The only ones who could argue progressive rates are avowed Marxists who’ve read and subscribe to the Manifesto.
@Rachel – Using your argument, since I don’t have kids in school I shouldn’t have to pay that portion of my property taxes that goes for schools. Sounds good to me.
Citizens for Tax Justice studied Mr. Cain’s plan and found it to be very favorable for the rich and bad for the poor and middle classes:
Lowest 20% would pay $2,073 more in taxes
Second 20% would pay $2,524 more in taxes
Middle 20% would pay $1,635 more in taxes
Fourth 20% would pay $ 20 more in taxes
Next 15% would pay $4,507 less in taxes
Next 4% would pay $20,883 less in taxes
Top 1% would pay $210,129 less in taxes
If Mr. Cain or anyone else thinks this would be fair, they should be rethinking their position.
See http://www.ctj.org, Herman Cain’s 9-9-9 Plan, October 17, 2011.
My 2 cents begins with my experience in talking with state legislators (in a different state). Some believe taxation to be a form of legalized theft from the public. Some believe taxation to be the price we pay for civilization.
If you’re in the first group, every price is too high. Strangling government by cutting off its revenue becomes something close to a moral imperative, since it’s assumed that taxation is, in large part, immoral to begin with, and the goal is not necessarily effective government. The goal is small (and thus inexpensive) government. A flat tax has some appeal as the lesser of several evils because, at the very least, it minimizes the price.
If you’re in the second group, almost any price is a bargain, because the alternative is the end of civilized society – a return to the world of tooth and claw. Expanding government, and government programs, is something of a moral imperative because there are always those upon whom misfortune falls, and the role of government is to do for the public what the public cannot do for itself. Interstate highways and transcontinental rail lines are examples.
With that as a preface, I’m with Rachel in endorsing #1 and #2. There are no societies, nor have there ever been, that are free from taxation. Those who argue that an income tax is unconstitutional haven’t paid much attention to the Constitution they claim to revere.
The most relevant questions may well be the degree to which ordinary citizens of the society have some minimal influence on who pays taxes, and how much they pay. Lately, the answer to both “who” and “how much” seem to be “not much,” and that suggests – to me at least – a system that is, ipso facto, unfair.
Mr. Swift’s comment is largely sophistry, but I think he’s probably right about one thing: a graduated tax scale depends upon the bias of those setting it.
For a generation (some might argue that it began with the adoption of the 16th Amendment), those that set the rate have been the wealthy. Through generous campaign contributions, persistent lobbying, and assorted other measures that have waxed and waned over the past century, but especially during and since the 1980s, the People Of Money have seen to it that capital gains – completely unearned – are taxed at a lower rate than income from labor. They’ve also seen to it that the effective rate for the “1%” is considerably lower than the rate for the rest of us, though some are now having moments of conscience about this.
Enthusiasm for a flat tax is almost exclusively from the right because that’s the side where most (but certainly not all) of the money comes from. Self-interest is always at play in politics, and the People Of Money, not being stupid, quickly realized that they benefit from a flat tax. Self-interest is also at play in some of the OWS rhetoric, but almost by definition, the people involved in OWS are not the people able to pull strings in Washington.
Mr. Cain isn’t interested in a tax system that’s fair – by the dictionary’s definition – any more than Mr. Swift is interested in such a system. Mr. Cain is interested in a tax system that minimizes the obligation for the wealthy, shrinks government by reducing funding, and with the sort of clever wording for which Madison Avenue and right-wing propaganda agencies have justifiably become famous, can be sold to the general public as something that deserves support.
@Ray – “Those who argue that an income tax is unconstitutional haven’t paid much attention to the Constitution they claim to revere.”
No one I know of has claimed that the income tax is unconstitutional.
I and others have claimed that it’s immoral and counterproductive because it taxes a man’s labor and something we should be encouraging.
But in addition, one could argue that the graduated rate system is unconstitutional because it violates the equal protection clause. If one man’s labor is taxed at 8%, why would another man’s labor be taxed at 38%?
We’re either all equal under the law or we’re not.
@Dennis #8
Is one of your kids a policeman like mine? He’s out there at 2:00 a.m. keeping your butt safe. Maybe you should pay more for police protection than I do. What would your fire insurance cost if we didn’t have a fire department? Would you invest in the market if there were no rules governing trades?
The point is that schools, roads, police, fire and many other government services are valuable to you and you have an obligation to pay for them all, not just the ones you like.
It’s not “fair” to say that a graduated tax costs the wealthy more. It’s costs them the same as it costs everyone else. Everyone pays X% for the first N dollars, (X+Y)% for the next N+M dollars and so on. That fact that some have more dollars than others is the difference here, not the tax rates.
“Fair” is a meaningless word, like “diversity” and “tolerance.” What we’re really talking about is values. What kind of society do we want to live in? I want to live in a place where everyone can live up to his or her full human potential. A graduated income tax is one part of that because it balances out just a little bit the enormous disparities in wealth and opportunity.
Apparently Mr. Tester thinks that his labor has value (else why would he be so incensed about it being taxed?). This is of course the basis of Marxism (Karl, not Groucho).
A socialist income tax would NOT be progressive. It would be 100% of all income over the subsistence level. I don’t see anyone currently advocating this.
Straw horse of a different color.
And as Thomas E. and David have pointed out, a progressive income tax is what enables us to live in a society rather than anarchy. The enlightened super rich (see Gates, B and Buffett, W) know that their wealth would be meaningless paper without social resources.
Yes class envy. So there are social/economic classes. And that’s what is at the root of the issue. I think not. Just as in a locker room the envy begins with the seen the viewed and then it evolves into jealousy. For once imagine yourself losing all. You try to recover and no matter how hard you try to stay on the high road nothing changes. What do you do blame yourself when you tried your arse off. Or do you ask yourself why do I have all the bad luck? Try this :
http://books.google.com/books?id=TV-PmY0yt7oC&pg=PA5&lpg=PR14&ots=5lhMFOv05J&dq=luck+in+getting+ahead&output=html_text
How do people get the life that others envy? Until that question is asked we will continue to have an uneven playing field. But some seem not to care. Or are so self involved that others don’t matter.
It’s funny how these guys who protest a tax on labor fail to grasp the actual relationship between labor and income. This idea that an income tax is a labor tax is just so goofy. They want to tax senior citizens social security checks as “labor”, and they want to do it at the same rate as everyone else. What labor is involved with capital gains income, or dividends? This is yet one more reason that flat tax rates for everyone become incoherent policy in the real world.
@7: I’m not a Marxist. In a consumer economy, all must have sufficient after-tax income to support themselves and to support the economy, while the government must have sufficient funds to pay for its activities. Those with lower incomes have a smaller margin to work with. The impact of a 20% tax on a household with a $35,000 income is far greater than the impact of that same tax on a $350,000 income, despite the fact that the higher income household pays 10 times as much in taxes. If you argue for a level of income at which no tax is paid, you are in effect arguing for a graduated tax. If you argue for a household with an income of $35,000 to pay the same percentage as a household with a $350,000 income, you have no idea what it costs to live in the United States.
@11: The equal protection analysis begins by requiring similar treatment for those similarly situated. All that’s required to withstand Constitutional scrutiny in economic matters is that Congress have a rational basis for any disparate treatment. In this case, a secretary earning $35k and an executive earning $350k are not similarly situated. Even if they were from a legal perspective, the disparity in incomes is more than adequate justification for disparate treatment.
Please put me down for 1 bottle of snake oil.
Thank you.
I believe Maureen B. Cavanaugh made the case for progressive taxation better than anyone, at least from the standpoint of history. Her article for the Alabama Law Review (Winter, 2003, available by LexisNexis), entitled “Democracy, Equality, and Taxes,” demonstrates that ancient Athenian democracy and progressive taxation were born as twins. Here’s an excerpt:
“Athens occupies a unique position in history as the birthplace of democratic government, dedicated to popular sovereignty and the ideals of equality and freedom. An exploration of Athens’s democratic ideals, their implementation, and the allocation of the tax burden to implement those ideals, may help us clarify from a distance our own analysis of equality for political rights and tax obligations.
In particular, it will be instructive to consider Athens’s political development from tyranny to democracy and corresponding decision to abandon a universally applicable flat tax and shift the tax burden from the entire population to the wealthy. In contrast, other political systems in history [such as Greek city-states ruled by tyrants – E.P.J.] have not concerned themselves with democratic ideals, although generally they distributed the tax burden equally.”
Cavanaugh’s entire article is worth reading, of course. It was David Cay Johnston, the tireless tax journalist, who first drew her to my attention, and now I consider myself lucky to have discovered the work of this great American scholar of Classical history and law, who I believe deserves to be better known – and who was incidentally born in Minneapolis. Sadly, Cavanaugh died in 2005, but happily, her scholarship endures.
This is a good and important discussion. I suggest that there is a difference between “fair” and “equitable.” In the concept of “fair” everyone is taxed at 9% or another number. In the concept of equitable everyone is taxed on ability to pay. A different concept entirely and one based on the ability of the givers and needs of those who benefit. If I have two children–one of whom chooses a career that benefits him/her greatly, and a second, who chooses a less financially rewarding (to him or her) career that might benefit mankind broadly, should I allocate my estate to each fairly (i.e., equally) even though one needs it far less? Or should I allocate it equitably according to the child who might need it most as opposed to the child who has or is being financially rewarded.
This dilemma, it seems to me, is at the heart of this valuable discussion.
One of the most frustrating parts of the tax debate is the notion from some commentors on the left that any reduction in spending is somehow a vote for anarchy! Look at the argument presented by #10 Ray:
“If you’re in the second group, almost any price is a bargain, because the alternative is the end of civilized society – a return to the world of tooth and claw. Expanding government, and government programs, is something of a moral imperative because there are always those upon whom misfortune falls, and the role of government is to do for the public what the public cannot do for itself. Interstate highways and transcontinental rail lines are examples.”
Bigger pensions for public employees? Better pay it or civilization will collapse. More high speed rail to nowhere? Fork it over or civilization will collapse. No responsible person could possibly hold this opinion. It wouldn’t allow them to weigh any possibilities. Since anything could cause the end of the world how could they ever say ‘no’? And I know that some liberals act as if there is money for every conceivable thing out there if only the rich would give it to them, but c’mon, you realize that this isn’t really true, don’t you?
Nor do conservatives hate government so much that they want to reduce it regardless of cost. We’re running the state on basically the MN GOP budget right now. So far we haven’t slipped into a dark age. Even the Ryan budget calls a smaller rate of increase.
Get past this idea that smaller government somehow equals ‘no government’. We’ve doubled the federal budget in the last ten years. Can anyone seriously argue that we can’t possibly cut back from there?
I get aroused by tax talk. Thanks for posting this.
The tax code should be simplified and the base broadened, chiefly by eliminating most loopholes. This holds out the prospect both of lowering rates and raising revenue, which should be a bipartisan goal.
Re: Mr. Cain’s 9-9-9 proposal.
I’m still not sure I understand it. I thought I knew that the plan proposed 9% income, sales, and corporate tax rates. But the corporate tax is not a simple reduction in the corporate tax rate, as I had thought, but a value-added-tax on “Gross income less all purchases from other U.S. located businesses, all capital investment, and net exports.”
I’ll echo what Michelle Bachmann said at the last debate about the 9-9-9 plan (is actually the 6-6-6 plan):
“The Devil is in the details.”
For those who never bothered to read section II of the Manifesto, check out item #2:
1.Abolition of property in land and application of all rents of land to public purposes.
2.A heavy progressive or graduated income tax.
3.Abolition of all right of inheritance.
4.Confiscation of the property of all emigrants and rebels.
5.Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.
6.Centralisation of the means of communication and transport in the hands of the State.
7.Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8.Equal liability of all to labour. Establishment of industrial armies, especially for agriculture.
9.Combination of agriculture with manufacturing industries; gradual abolition of the distinction between town and country, by a more equitable distribution of the population over the country.
10.Free education for all children in public schools. Abolition of children’s factory labour in its present form and combination of education with industrial production.
Wow, looks like the DFL platform.
@#24
You point out ONE similarity amongst 10, and claim that it looks like the DFL platform? I see only 2 similarities (though the second similarity is really only half similar–I don’t know of any DFLer suggesting that we ought to teach kids in factories instead of simply exploiting child labor–neither is acceptable). The rest is completely different.
Based on your logic (which is as illogical as your statement in post #8), we can take one or two similarities–say, the belief in a god and a book in which the supposed rules from god are written–and say that two unequivalent things are equivalent–say, all Christians, Jews, Mormons, and Muslims look an awful lot like those people that flew planes into the Twin Towers. That’s pretty silly. And offensive. Feel free to tone down the hyperbole.
Two myths have misinformed our debate about taxes. They are: (1) the Black-Hole myth, which pertains to government, and (2) the Golden-Goose myth, which pertains to the corporations.
The content of the Black Hole myth, which is more often implied or insinuated than elaborated, of course, like most myths, is that a whole lot of money disappears into the government and is never seen again, so that the government becomes a dead weight dragging the engine of our economy down. Worse, as the government takes in more money and grows, the Black Hole gets stronger and sucks everything into itself, until the government owns everything and we own nothing.
There should be no mystery about what happens to our tax money after the government takes it. The government SPENDS this money. Indeed, the federal government often spends even more money than it has, which is why we have so much debt. We get at least as much money back from the government as we put in. Therefore, the Black Hole myth is just that – a myth and nothing more. Yet the fear it holds over many of us is palpable.
We should of course talk about HOW the government spends its money, and I’m sure everybody objects to some of these expenditures as wasteful, improper, or both. But the problem with the Black Hole myth is that it stops this discussion before it even starts. The fearful notion that “The government is too big!” stops us from reflecting that the important question is not how much the government either taxes or spends. It is what we get in return for what we spend.
The Golden Goose myth is the mirror image of the Black Hole myth, and it insinuates itself upon the public consciousness in the same way. We are to believe that the corporations are Golden Geese, which create all of our wealth for us, just as a bird lays eggs. Overtaxing a Golden Goose, or even over-regulating it, might kill it, and then we would have no more wealth!
The Golden Goose myth is a myth contained inside a myth, like a yolk contained inside an egg. Its internal myth is the myth that wealth actually comes from money. This internal myth has actually become much stronger as the real economy of farms and factories has come to be dominated by the largely symbolic economy of the financial sector. We are made very afraid of government debt, because debt is the opposite of money, and since our wealth comes from money, we are impoverishing future generations with debt.
The Golden Goose myth can best be dispelled by sucking out its yolk, which is the Wealth-out-of-Money myth. We need to reverse it: Wealth does not come from money; money comes from wealth. And wealth comes from work, natural resources, tools, factories, and technological know-how. Neither the corporations nor the banks are the Golden Geese. We are.
If we invest in and educate our workers, protect our natural resources, take care of our tools and factories, then we will always have wealth, because these are the true sources of wealth. On the other hand, if we tax lower-income workers as if they were rich bankers and the rich bankers as if they were lower-income workers, we may have more money now (or, more accurately, the bankers will have more), but we won’t have as much wealth in the future.
Indeed, if there is a monster in our society that really does behave like a Black Hole, I’d say it is the financial sector, which in recent times has created enormous holes of debt that the government has to fill in with our money.
Can we just have our next civil war, so this debate will finally go away?
#26 Eric, I’m in agreement with the two myths that you cite, but only when they’re in the extreme that you put them. For instance, I think that the debate over the full size of the government is the KEY debate. We need to figure out what size we can actually afford and then work backwards and prioritize with what we can actually have.
Right now we have a federal budget of nearly $4 trillion while we only take in about $2.5. This is completely unsupportable.
I think R. Schulz is steering in the right direction. Until the playing field is leveled a bit, a flat tax will not help. But restart us all from scratch? how are we to do that?
D. Schluck… Be careful what you wish for. Issues of social justice have been the basis of many wars. Did I just answer my own question?
Peder//One of the most frustrating parts of the tax debate is the notion from some commentors on the left that any reduction in spending is somehow a vote for anarchy!
Actually what’s frustrating is when conservatives argue with imaginary liberals instead of real ones. Liberals have been advocating cuts in military spending for decades without fear of anarchy. I don’t know any real liberals who think any spending reduction at all will result in anarchy.
Liberals are however interested in details. You want to cut, fine, but what EXACTLY is it you want to cut? This is a democracy, and it my government as well as yours so you don’t to just cut programs you don’t use or don’t like. And the answer isn’t always “smaller”, or “less”.