What is a fair tax system?

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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, we can’t always agree on the definition of “righteous” or if we do, it’s because it’s selfish. It can mean very different things to different people. For example, Connecticut culture accepts a progressive tax system as “fair” (although much of the political class thinks it should be “fairer”, dadgummit!) But I would say that a progressive system is close to being “fair.” I am not basing this analysis on Karl Marx or Adam Smith. I am basing myself on common sense.

Alain Calandro

Think about when you go out to lunch with a friend. What do you do when the invoice arrives? You probably split it evenly or if someone had a clearly more expensive meal, that person would freely add more (usually). It seems fair because it is intuitively fair as in “one for you and one for me”. We all understand this. But no one, at least in any of the meals I’ve ever been to, has offered to divide the bill by their income.

Basing the bill on income would mean that your friend who wins twice more To pay twice more. So a $ 30 meal bill will be split into $ 20 for them and $ 10 for you, even though you had the exact same meal. It is a percentage-based system which, for taxes, causes the richest people to pay much more than the amount of taxes to finance the government.

Most generally accept free riding as its “right”. But in reality the system is even “fairer” than that. Under tax systems across the country, not only does the richest person pay more in real dollars because of the above, but they also have to pay a higher amount. percentage of their income. So – keeping the lunch analogy – instead of paying $ 20 for their meal, they pay $ 25 and you pay $ 5 (for people who actually pay taxes, that is, since only 39 % of households actually pay income tax – and yes I’m aware there are a lot of other taxes people pay). Yet almost all of us accept this higher percentage system as being “fair” as well.

But try this the next time you have lunch with friends and see how it goes. I bet it wouldn’t be fair to anyone. Maybe it’s because we know people and have to look them in the eye. The unidentifiable “rich” are easier to criticize and charge more. Whenever I hear “the rich” and how does everyone agree to tax them more (not you) because of “fairness”, I wonder who exactly are these people? Yes sure, it’s the hedge fund owners, the Bezos, Gates, and Zuckerburgs of the world, but it’s much broader than that. Some of these rich people can actually be normal and nice. (OK, having listed the names before that, I have to admit I’m having a hard time with that.)

Strangely, at the same time that I think such a system of taking money from others is fundamentally unfair / bad, I also think that having too much wealth is immoral. Maybe it’s because I’m an easily satisfied person. How many Big Macs can a person eat? Perhaps it was my Catholic education (“it is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God”). Maybe it’s because I don’t feel like I’m stealing other people’s business like taxes do. I’m not sure, but it certainly seems wrong to have billions when a lot of other people (usually not in the US) have next to nothing.

I’m so opposed that I would be in favor of a cap on the wealth a person can create or own – which of course flies in the face of my tax fairness point. And not only that, but my wealth ceiling would be pretty low – like a few million dollars, maybe less – not just the obviously obscene billions of dollars that some people earn / own.

But I understand that the lower the cap, the greater the negative countereconomic effect it would have on wealth creation and the economy as a whole. But I certainly do not believe in such thinking when it comes to vast riches amounting to billions. The proof is that extremely wealthy people donate their money – obviously because they don’t need it. Plus, their philanthropy is almost always given with their name on it. It turns out that you can even “buy” the perception of “kindness” by setting up a foundation or giving your name to a hospital. Heck, even athletes (and others) who don’t have billions are smart enough to create foundations on their behalf to bolster their public image, which not only translates into a positive image but also a positive net effect. on income.

By the way, the United States did not have a permanent income tax until 1913 with income rates ranging from 1% to 7% (federal government revenues before that time came mainly from tariffs – hasn’t a guy named Trump tried these met with almost universal condemnation?). It took an amendment to the Constitution (the 16e) to allow the imposition of income tax. During the 1950s and 1960s, the highest tax rate in the United States was around 90% (not too far from a cap!). I guess upper-income people at the time could take comfort that England had imposed a 95% tax rate – hence the Beatles song “Taxman” written in frustration. And today, the rate is 37%, against 39.6% after the 2017 law on tax reform.

We’re a long way from 90% now, and many want to raise our current rates and spend a lot of money, but I still like the idea of ​​the cap. Guess I shouldn’t be too worried about its effects as it didn’t cause massive concern to those who imposed high rates in the 1950s and 1960s. So let’s put a cap, I’m even open to stark suggestions on where the line should be – but let’s not call it “just”. Learn more about a better tax system to come.

Alan Calandro is a longtime independent and former director of the General Assembly’s non-partisan office of tax analysis and a former chief of staff for administration and finance at the University of Connecticut.


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