More than a few commentators on the left and elsewhere – as well as a host of Democratic legislators – are deploring the idea that families who earn more than $250,000 will be allowed to share in the continued lower tax rates of the so-called Bush tax cuts, and more than a few letters have graced the pages of various publications declaring that the rich and super-rich shouldn’t get such benefits.
Were the people who made $25,000 in the mid-1950s “rich?” Certainly, no one I knew thought they were rich. Well-off perhaps, even affluent, but certainly not anywhere close to rich. Yet an income of $250,000 today is worth about what $25,000 was 60 years ago, perhaps even less, adjusted for inflation. In real terms, even gasoline prices aren’t that much higher than then, and they’re certainly far lower, in terms of the purchasing power of the dollar, than they were during the “gas crisis” of the early 1970s.
To be fair about this, I’m just as appalled by those on the right who declare that increasing the taxes on those making more than $250,000 will bankrupt small businesses. If a business making, say, $500,000 annually can’t afford an additional $10,000-$30,000 in taxes, then that business is in trouble already. If the business is making enough to worry about increased taxes in the hundreds of thousands of dollars, it’s not a small business, besides which, at that level it should be incorporated and passing on those taxes to its customers, the way all the other U.S. corporations do – which is part of the reason why the whole idea of taxing corporate profits doesn’t make economic sense in a world economy… not that most politically motivated tax policies make economic sense.
I’d be among the first to admit that the United States government faces a fiscal crisis, but the reason why isn’t because the rich are greedy, or too many of the “poor” are undeserving, or that immigrants are “milking” the system, all of which are overblown stereotypes based on true anecdotes that are statistically a small proportion of what has caused our unbalanced budgets and deficits. The reason is that the American people, as a group, really have no understanding of numbers or what those numbers mean, and, unfortunately resist anyone or any institution that wants to enlighten them. Nor is there any serious questioning of the basis of the whole idea of taxation as now practiced. Admittedly, if we want government services, they have to be paid for. But why do we continue with a system that isn’t raising the revenue necessary to cover the services we demand and yet reject either reducing demand or changing the basis of taxation?
If I walk into a McDonald’s and order a Big Mac, the cashier doesn’t ask me how much I make and price the sandwich accordingly. The same is true at every retailer in the U.S. and for the majority of commercial services. In fact, larger commercial customers usually get discounts for their larger orders. Yet all the services that the U.S. government supplies are essentially based on income and “cost” more the more someone makes. Someone in the upper fifth of income in the U.S. pays a great deal more for his or her share of national defense, national parks, etc., than does someone in the lowest fifth, who often pays nothing at all.
Now… the rationale for higher individual costs of government [i.e., taxes] rests on the assumption that wealthier people benefit more from government and upon the idea that poorer people cannot afford to pay taxes. Moreover, there is a feeling that it is somehow “unfair” to tax a well-off person and a poor person the same percentage of their income. Yet, if one taxes someone who makes $100,000 at a ten percent rate, and someone who makes $20,000 at that same ten percent rate, the person who is better-off is paying $8,000 more than the poorer person for the same government services. That’s 400% more. If one then adds in the “progressive” tax structure, the person who is well-off may be paying tax rates of more than 20%, which works out to 900% more. Does that person who is well-off get nine times more government services? No.
In fact, it’s likely that the poorer individuals get more government benefits than wealthier individuals. I emphasize the word individuals because once one factors in corporations, that picture changes. Various organizations, from foundations to industries, do in fact get large benefits, and because, in effect, as I’ve discussed many times before, corporations essentially pay no taxes because they pass those costs on to the customers and consumers, they have often have no real costs, or reduced costs, for the government services they receive.
Larger homes on larger lots pay more property taxes just about everywhere. But do the owners of such homes actually require more municipal services? The odds are that they don’t. In fact, they may require fewer.
All of this brings up a larger question: Why do we tax people and their property on their income and the value of their property for government services? Why don’t we just tax them on the basis of services?
The simple answer is that it’s politically unwise. A recent example occurred in a Utah county that imposed a fee for police services for those areas of the county not belonging to the municipalities that paid for police services. More than a few people simply refused to pay – and that could lead to the situation that occurred in another state, where firefighters refused to fight a fire where the homeowner had not paid a $75 firefighting fee, and the homeowner watched his home burn to the ground.
The second answer is that a significant fraction of the population cannot pay such fees, and failing to provide such government and municipal services would endanger those who can pay even more than those who cannot. Allowing crime to go unchecked in neighborhoods that cannot pay for police services would only result in crime spreading, and in the end, those who can pay would pay even more to protect themselves. A similar practicality applies to a number of services, from roads to sanitation, to regulation of food and highway safety, and so on.
Any community requires a baseline of services to survive. So do nations, although that baseline varies by culture and the times. The problem the United States faces today is that, as a nation, we’re asking for more in government programs and services than the majority of people wish to pay. It’s no secret that 10 % of the population pays more than seventy percent of the taxes… and that, essentially, they pay for the privilege of being successful. The plain fact is that those who are well-off pay more in taxes comparatively, percentage-wise, and in absolute terms because they’re a minority and because society as a whole insists on it, not because it’s fair.
Today, the majority of Americans don’t and won’t pay for the bulk of services that they think government should provide. That same majority thinks that it’s wrong for the richer minority to object to paying the bulk of those costs. Why exactly is it wrong for the “rich” to object to paying a disproportionate share, and why is it right for the majority to demand services it won’t support through taxes, especially when 30% of the population pays no federal income tax at all? McDonald’s doesn’t give free food to thirty percent of its customers, and no one thinks that’s unfair, but government certainly gives free or reduced price services to more than thirty percent of its citizens.